
    William C. White, as Trustee in Bankruptcy of Isaac Davis, a Bankrupt, Respondent, v. David Rovall, Appellant, Impleaded with Henrey Riepe and Ellen Riepe, Defendants.
    Fourth Department,
    July 9, 1907.
    Foreclosure — mortgage given by accommodation indorser — exhaustion of remedy against principal debtor — bankruptcy — effect of payment of debt by trustee — evidence — amendment to conform to proof.
    An accommodation indorser who, to secure;the- note of her husband, joins with him in'a. mortgage covering both lier lands and Ms, is entitled on foreclosure to have the lands of her husband (the principal debtor) applied to the payment- c* the note before recourse can be had 'against her lands; and her grantee has the same rights. ■
    When, after the execution of such mortgage, the husband is adjudged a bankrupt, and his trustee, after conveying the husband’s lands by a deed purporting to relieve them from the lien of the mortgage, pays the note and takes an • assignment of it together with the mortgage, he cannot afterwards hold the lands of the wife on foreclosure, either as against her of her grantee, for the debt is paid. .
    When in such action of foreclosure it has been shown beyond question that the wife was an accommodation indorser and pledged her lands only as surety for her husband’s debt, it is error to refuse to make a finding to that effect on the solé ground that it had not been pleaded as a defense, for the defendant should, have been allowed toanend the answer to conform to the proof.
    Appeal by the defendant, David Rovall, from a judgment of the County Court of the county of Erie in favor of the plaintiff, entered in the office of tlie clerk of. said county on the 18th day of December, 1906, upon the decision of the court rendered after a trial without a jury.
    The action was commenced on the 14th day of May, 1906,. to foreclose a mortgage upon certain premises in' the.city of Buffalo, R. Y., owned by the defendant Rovall, who had purchased the premises subsequent to the giving of the mortgage.
    
      William B. Frye, for the appellant.
    . Martin Olarh, Eugene Warmer and' David Buslander, for the respondent.
   McLennan, P. J.:

The material facts are not in dispute. In December, 1905, one Isaac Davis and Tina Davis, his wife, were each the owners in. fee simple of certain parcels of real estate situate in the city of Buffalo, R. Y. • Isaac Davis owned the premises secondly described " in the complaint and Tina Davis was the .owner of the lands first described therein. The lands thus owned by Tina Davis aré the premises decreed to be sold by the judgmént of foreclosure and sale which is appealed from. • The judgment decreeing a foreclosure and sale of: the premises owned-by Tina Davis is based upon the following facts: On December' 27, 1905, the said Isaac Davis and Tina Davis, his wife, executed and delivered to the Citizens’ Bank of Buffalo a mortgage as collateral and continuing security for the payment of all promissory notes, checks, drafts or bills of exchange made, drawn, indorsed or accepted' .by either mortgagor to the amount of $1,000, which' mortgage covered the premises secondly described in the complaint and - owned by Isaac Davis and also the premises owned by his wife and first described in the complaint. Such mortgage was on the day of its execution .duly recorded in the Erie county clerk’s office.. On December 28,1905, said Isaac Davis made his promissory nóte for $3,500, payable in four months to the order of Tina Davis, bis wife.- Such note .ivas indorsed by Tina Davis and was discounted by Isaac Davis "at the '.Citizens? Bank.; The proceeds were placed to the credit of said Isaac Davis and subsequently were checked out by him for his own use and. purposes.

If we assume that Tina Davis was an accommodation indorser upon such note and that she as surety executed the mortgage in question by which she pledged her property as security for- the pay! ment of her husband’s indebtedness, it. is "clear that slie-was entitled to have "applied".in 'payment of such indebtedness the. pledged security and property of her husband (the"principal debtor) before claim could be made against her upon her obligation as surety. Such rule of law we think is. axiomatic. Where the property of a principal is jointly pledged with th,e property of a surety to secure the payment of'the principal’s debt a court of equity , will decree that his property mu.st be fully applied in the extinguishment of such debt before recourse can be had to the property of the surety.. .The correctness of such rule we think could not or would not be questioned if this action had been brought by the Citizens’ Bank, the mortgagee, against • Isaac Davis, the principal debtor, and his wife, the surety, the mortgagors. Has anything occurred as shown by the undisputed facts which .in any manner changes such rule of law* notwithstanding the'plain tiff is the assignee of siich "note and mortgage from the bank and the. defendant is the grantee of Tina. Davis of the premises owned- by her and which were included in the mortgage as security simply for the- payment of her" husband’s debt ? ■ ,

It appears that on April 5,1906, .which was prior to the maturity of the" note for $3,500 given by Isaac Davis, his wife, Tina Davis,, by quitclaim deed dated that day,, conveyed to the' appellant Bo vail the parcel of land owned by her and which was covered by the mortgage in question. Prior thereto and in February, 1906, Isaac Davis was adjudged a bankrupt and the plaintiff was appointed and duly qualified as trustee of his estate and is still acting as such. On the 7th day of April, 1906, said trustee by quitclaim-deed conveyed to one Buehi and another the. property which was owned by Isaac Davis and which was secondly described in the complaint, and on the same day a like deed of the same premises was executed and delivered to said purchasers by Isaac Davis and Tina Davis, and by the terms of such conveyances .said premises, the fee of which was owned by Isaac Davis, were released from the lien of the mortgage in suit. Thus far no facts appear which would seem to distinguish the rights of the grantee of Tina Davis in the premises formerly owned by her from what hers would have been had she retained title to the same. She had conveyed her interest in such premises to the appellant, and in addition had only joined in a conveyance to. Buelil of the premises owned by her husband.

The note made by Isaac Davis for $3,500 became due on April 30,1906, and not being paid by him at maturity was duly protested for non-payment and notice of protest given to all parties. There-. after and on the 2d day of May, 1906, the plaintiff as trustee paid . the amount of said note to the bank and took from the bank an assignment of the note and mortgage in suit, and on May 14, 1906, brought this action to foreclose the mortgage upon the premises owned by the appellant Rovall which had been conveyed to him by Tina Davis as. above stated. " ■

The complaint was in the form usual in such cases. The appellant Bovall interposed a general denial and alleged that the note and mortgage had been satisfied and paid in full by reason of the ' payment by the trustee to the bank of the amount thereof, and because the amount so paid was received upon the sale of the property which was owned by Isaac Davis, the principal, and included in the mortgage executed by himself and wife. At this point there is absolutely no dispute about the facts. The trustee of the estate of Isaac Davis in the bankruptcy proceedings sold the property, the fee of which was owned by Isaac Davis and which was covered by the mortgage, .and received for it more than sufficient to discharge every obligation assumed by Tina Davis under said mortgage. He took the proceeds of such sale, amounting to more titan $4,000, the limit’of the obligation assumed" by Tina Davis under the mortgage, and out of such proceeds paid to the bank the amount of the. note and took an assignment thereof and df the mortgage ■ given as security for the payment of the same, and’ now seeks to, and by this judgment it is decreed that lie may, reimburse himself-for such payment out of the property of the surety. In other words, he lias sold'the property of the principal jointly pledged-with that of the surety and has received more than sufficient tp meet the surety’s obligation, and still insists that he may .apply the property of the surety to the payment of such obligation precisely as if nothing had been realized by him' upon the property of the principal jointly jffedged for the payment of shell indebtedness.--

It is cpiite evident that Isaac. Davis was indebted to the Citizens’ Bank' largely in excess of the note made by him for $3,500, and that the trustee is- endeavoring to apply the avails of his particular property described in the mortgage to the payment of general creditors and to compel the application of his wife’s property to the payment of the particular indebtedness, the "payment of which was. secured by'the mortgage in question. But the trouble with the consummation .of such a plan is that the obligation of Tina Davis was only that her property should be devoted' to the payment, of such note, or at most not to exceed the sum of $4,000 of the obligations of her husband, in case the property pledged by him jointly with hers was not sufficient to pay such amount. .

.The plaintiff claimed upoii the trial, and for the purposes of, this appeal it will he assumed, that by the assignment of the noté and mortgage he became subrogated to all the rights'of the bank in the premises. . As before pointed out. if such bank- had attempted to foreclose, such mortgage- as against the mortgagors, the surety would have been entitled to insist as against it that it first devote the property of the principal - to the payment of the obligation before it could have recourse to the property pledged by her," We think it is also clear that the appellant Rovall stands, in precisely the same situation as wotild his grantor if a decree of foreclosure were here sought against her. He has a right to insist/ that the -property of the principal-shall be applied to the payment of the debt for which his grantor was surety before recourse can be had ' to the property conveyed t.o him.

Upon the trial, when the defendant offered evidence tending to prove that Tina Davis was an accommodation indorser and was simply .surety for her husband, the evidence was objected to by the plaintiff upon tlié/ground that such defense bad not been pleaded; Such objection was overruled, the evidence was admitted and it is of such a character as to leave it practically beyond doubt that Tina Davis was simply surety for her husband, but upon the decision of the case the learned trial court made no finding to that effect, and when requested to so find by,the defendant refused solely because it was not within the issue. We think such refusal constituted error, becanse it practically denied the defendant the opportunity to amend his answer. It, at least, did not apprise liim. that the court considered that there was any necessity for such an amendment. The issue as to whether or not Tina Davis- was an. accommodation indorser and.simply surety for her husband was' the vital issue in the casé, and if the court considered that such defense should have been more specifically pleaded in order' to have made it available he should have so indicated and have permitted an amendment upon proper terms. As we have seen, there is practically no dispute as to the facts. She was an accommodation indorser; she was simply surety for the payment of her husband’s debt, and it appears by evidence which ' was uncontradicted. We think, if deemed necessary, the court should have made the'plead'in'gs conform to such proof.

'We conclude that the judgment appealed from should be reversed and a new trial granted, with costs to the appellant to abide the event. • ' '

All concurred.

Judgment reversed and new trial ordered, with costs to the appellant to abide event.  