
    The New York Life Insurance Co., App’lt, v. James Aitkin, Ex’r, Resp't.
    
      (Court of Appeals,
    
    
      Filed February 24, 1891.)
    
    
      1. Mortgage—Assumption of, in deed—Release.
    In 1868 Phoebe T. Drew and husband mortgaged property in New Jersey to plaintiff for $4,000. In 1869 they conveyed the premises to John Gregg, and in 1870 Gregg and wife conveyed to Helen E. Aitkin, she assuming in the deed the payment of the mortgage, and remaining in possession until 1873 when she sold to Rathbone who also assumed the mortgage, and Mrs. Aitkin moved to New York and died there in 1875, leaving a will in which her husband was named as executor. The mortgage being foreclosed in September, 1880, resulted in a deficiency, and in September, 1888, defendant Aitkin procured from Gregg, who was insolvent, a release from the covenant of assumption in the deed to Mrs. Aitkin, and upon this action being brought upon such covenant set up among other things said release. Held, that the release did not discharge defendant from the covenant of assumption made by his wife, either under the law of this state or that of New Jersey, as the covenant had come to the attention of plaintiff and been adopted by it,¡and that plaintiff might recover in this action the money still due on the mortgage.
    2. Same.
    An action at law may be maintained upon such a contract.
    8. Same.
    The release being set up in the answer, but not as a counterclaim, it was not necessary for plaintiff to reply, and it was entitled to meet the answer by any competent evidence to defeat or avoid its allegations.
    4. Same—Code Crv. Pro., § 1628—Lj¡ave of court.
    Section 1628 of the Code Civ. Pro., requiring leave of the court to bring an action to recover part of the mortgage debt after final judgment, has reference solely to a foreclosure conducted in this state, and the leave must be obtained in this state.
    Appeal from judgment of the New York superior court, general term, overruling plaintiff’s exceptions and ordering judgment for defendant on the opinion of the trial judge.
    December 3, 1868, Phoebe T. Drew and John G. Drew, her" husband, of Elizabeth, N. J., executed their bond conditioned for the payment to the plaintiff of $4,000 one year from the date thereof, and as collateral security therefor at the same time executed to the plaintiff a mortgage on certain premises in Elizabeth, N. J. On the 15th day of December, 1869, Mrs. Drew and her husband conveyed the mortgaged premises to John Gregg by & deed wherein the grantee covenanted and agreed to pay the mortgage above mentioned. On the 28th day of December, 1870, Gregg and his wife conveyed the mortgaged premises to Helen E. Aitkin, by a deed which contained an assumption clause in the following words: “ And this conveyance is made subject, nevertheless, to the lien of a certain mortgage made and executed by the said party of the first part to the New York Life Insurance Company, bearing date the 3d day of December, 1868, to secure the sum of four thousand (4,000) dollars, lawful money of the United States, with interest thereon, which mortgage, forming a part of the consideration money hereinbefore expressed, and having been deducted therefrom, the said party of the second part hereby assumes and undertakes to pay and indemnify and to save said party of the first part harmless therefrom.”
    Mrs. Aitkin entered into possession of the premises so conveyed, and remained in possession as owner thereof until May, 1873, when she conveyed them to Aaron H. Eathbone by a deed in which he assumed payment of the mortgage. Mrs. Aitkin and her husband moved to the city of New York in 1873 or 1874, and she died there in 1875. She left a will in which her husband, the defendant, was named executor, and the will was admitted to probate in the city of New York, and letters testamentary thereon were issued to the defendant. In September, 1879, the plaintiff filed a bill in the court of chancery in New Jersey to foreclose the mortgage, and named as parties defendant in that suit Phoebe T. Drew, John. G. Drew, John Gregg, Helen E. Aitkin, James Ai'tkin, Aaron H. Eathbone and Mrs. Aaron H. Eathbone. The bill alleged the making of the bond and mortgage by Drew, and the conveyance of the mortgaged premises to Gregg, and his assumption of the mortgage; the conveyance by Gregg to Helen E. Aitkin, and her assumption of the mortgage; the conveyance by Helen E. Aitkin to Aaron II. Eathbone, and his assumption of the mortgage. It alleged default in payment of the mortgage, and prayed for the foreclosure of it, and for payment of any deficiency arising on the sale by Phoebe T. Drew, John G. Drew, John Gregg, Helen E. Aitkin and Aaron H. Eathbone. Phoebe T. Drew, John G. Drew and John Gregg were personally served with process within the state of New Jersey, and the other defendants, who resided in the state of New York, by publication and mailing. The bill was taken as confessed on February 20, 1880; on March 5, 1880, there was a decree of foreclosure and sale, and a decree for payment of the deficiency by the defendants against whom it was asked. The mortgaged premises were sold on March 26, 1880,‘’and resulted in a deficiency of $1,590.80. On September 28, 1888, a few days before the-commencement of this action, the defendant procured from John Gregg a release from the covenant of assumption contained in the deed to Helen E. Aitkin, in the following language:
    “For, and in consideration of one dollar, lawful money of the United States of America, to me in hand paid by James Aitkin, as executor of the last will and testament of Helen E. Aitkin, deceased, I hereby release and discharge the said James Aitkin, as executor as aforesaid,, of and from any liability to me for, because or by reason of the assumption by the said Helen E. Aitkin and her undertaking to pay a certain mortgage of four thousand dollars to the New York Life Insurance Company, dated December 3, 1868, with interest, contained in a certain deed bearing date the 28th day of December, A. D., 1870, made by me and my wife, Phoebe, now deceased, to said Helen E. Aitkin, and recorded in the office of the clerk of Union county in book 42 of deeds, on page 452, etc., in the state of New Jersey.
    “Witness my hand and seal, dated September 28, 1888.
    “John G-regg.” [l. s.]
    This action was commenced on the covenant of assumption contained in the deed from Gregg to Mrs. Aitkin, on the 11th day of October, 1888, to recover the balance due upon the bond and mortgage. The material facts above set out were alleged in the complaint, and the amount claimed was $1,590.80, with interest from March 5, 1880, which was alleged to be the deficiency upon the New Jersey foreclosure of the mortgage.
    The defendant, in his answer, .put in issue all the material allegations of the complaint and alleged several defenses as follows: (1) That at the time of the deed to her, Mrs. Aitkin, she was a married woman, and that she was not by the laws of New Jersey personally bound by her covenant of assumption. (2) That he had no notice of the New Jersey foreclosure suit, and that neither he nor his wife was made a party thereto. (3) That he was discharged from any liability by reason of the release executed to him by John Gregg. (4) That no leaye of the court was obtained by the plaintiff to bring the action before the commencement thereof. (5) That the action was barred by the New Jersey statutes of limitations.
    The action was brought to trial and the facts above stated, and other facts, were proved, and at the close of the evidence on both sides the plaintiff moved for the direction of a verdict in its favor for the amount claimed, with interest, and the defendant moved for the direction of a verdict in his favor. The trial judge denied the plaintiff’s and granted the defendant’s motion and directed, the plaintiff’s exceptions to be heard at the general term in the first instance, and that the entry of judgment be in the meantime suspended. The exceptions were brought to a hearing at the general term and overruled, and judgment was ordered for the defendant From that judgment the plaintiff has appealed to this court
    
      Henry G. Atwater, for app’lt; Edward W. iScudder Johnston, for resp’t.
   Earl, J.

The record discloses that the plaintiff was defeated at the circuit, and the' verdict there ordered in favor of the defendant, upon the sole ground that he was by the release executed to him by Gregg absolutely • discharged from the covenant of assumption made by his wife, the testatrix, and the effect of the release is therefore the first matter now to be considered. If the question is to be governed by the law of this state, it is entirely clear that the release did not discharge the defendant. The covenant of assumption had, long before the release, come to the notice of the plaintiff, and it had adopted and acted thereon. Having no notice of the death of Mrs. Aitkin it commenced the suit for the foreclosure of the mortgage in the state of New Jersey, and inserted her name in the process and complaint as a party to the action, and prosecuted the action to judgment upon the assumption that she had been made a proper party thereto. In the complaint in that action the covenant of assumption was alleged, and a deficiency judgmentwas prayed against Mrs. Aitkin and others. Whatever may be the effect of those foreclosure proceedings, they were at least competent to show that the plaintiff adopted and relied upon the covenant of assumption made by Mrs. Aitkin. After that covenant had thus come to the attention of the plaintiff, and had been adopted by it, Gregg, the covenantee, could not release her or her estate from the obligation of the covenant, and so the law must be deemed to be finally settled in this state. Gifford v. Corrigan, 105 N. Y., 223; 7 N. Y. State Rep., 7; S. C, 117 N. Y., 257; 27 N. Y. State Rep. 233; Watkins v. Reynolds, decided in this court October 7, 1890, 33 N. Y. State Rep., 173. Therefore if the law of this state governs, the release was not operative to bar this action.

But we reach the same conclusion if, as contended by the defendant, the effect of the release is to be determined by the law of New Jersey. There the courts hold that a covenant by a grantee of mortgaged premises, contained in the deed to him, to assume and pay the mortgage debt is a contract with his grantor only for the indemnity of the latter, and may be released and discharged by him, and generally that where parties have made a contract which will, either directly or indirectly, benefit a mere stranger, they may at their pleasure abandon it and mutually release each other from its performance, regardless of the stranger’s interest, unless the parties, with knowledge that he is relying on the con-. tract, suffer him to put himself in a position from which he cannot retreat without loss in case the contract is not performed, and that then he may ask to have the contract performed so far as it touches his interests. They hold that the mortgagee in such a case may enforce the covenant of assumption in equity, on the principles of equitable subrogation, thus appropriating a security which the mortgagor has obtained from his grantee for the benefit of the mortgage; and the rule seems to be that the covenant can only be enforced in equity. But the courts there have held further, that a release of a grantee’s assumption of a mortgage debt, given by an insolvent grantor without consideration, and for the sole and admitted purpose of defeating the mortgagee’s claim in equity for a deficiency, is void in equity; that the release to be operative must be given in good faith and for a valuable consideration, and not for the sole purpose of defeating the claim of the mortgagee. The following authorities were proved upon the trial and are ample to sustain the views just expressed. Crowell v. Currier, 27 N. J. Eq., 152; Trustees v. Anderson, 30 id., 366; Youngs v. Trustees, 31 id., 290; O'Neill v. Clark, 33 id., 444.

In the case of Trustees v. Anderson, the chancellor says: “ In the present case recourse was had to the expedient of the releases as a means of protecting Youngs against his liability to the complainants who, though they had not, in fact, commenced suit, were, as the parties to the release well knew, about to do so; and they had made preparations accordingly. No consideration passed, nor was any to be given. Nor were the releases founded on any equity or equitable consideration. The mortgagor was insolvent and had no longer any interest in the indemnity which Youngs had given him against his liability on the complainant’s mortgage. Had he been solvent the. releases would of course not have been executed. The hollow, unsubstantial formality of the execution and delivery of the releases creates no barrier to the equitable relief to which the complainants are entitled. A release executed mala fide for the mere purpose of defeating the action of equity, or of eluding its reach, will be of'no avail.” Here Gregg at the time of the release was insolvent, and it is very certain that if he had not been he would not have executed it. No consideration whatever was paid for the release. It was obtained a few days before the commencement of this action. Gregg testified that at the time the defendant obtained the release he said that “ it was because of something that had been obtained in the foreclosru'e of the mortgage on the premises, a deficiency, or something like that, and he gave me nothing, but said he would remunerate me ; ” and that was about all that was said between them. That a release obtained under such circumstances would in New Jersey be held unavailing in equity cannot be doubted. There was no dispute about the. facts. They appear in the evidence of Gregg, which is undisputed, and in harmony with the terms of the release, which appears on its face to be in consideration of one dollar.

But the defendant makes the further claim that according to New Jersey law his liability upon the assumption clause could, in any event, be enforced only in an equitable action, and possibly in an action to foreclose the mortgage, to which he bad in some way been made a proper party. But this is matter of mere form, not of substance, and relates to procedure, and the procedure in an action in this state must be governed by the laws of this state; and by our law an action at law may be maintained upon such a covenant.

It is further said that in New Jersey the plaintiff could only assail the release by alleging the fraud, and thus tendering an issue upon the question of its fraudulent execution. This is again matter of procedure to be regulated by the practice in this state. No notice is taken of the release in the complaint, and at the time of the service thereof it is probably true that the plaintiff had no knowledge of the release. It is set up in the answer, but not as a counterclaim. It was, therefore, not necessary for the plaintiff to reply to the answer, and it was entitled to meet the answer by any competent evidence to defeat or avoid its allegations. If the defendant had desired a distinct issue upon the release he could have procured one under § 516 of the Code of Civil Procedure, by a motion to the court for a direction to the plaintiff to reply to the new matter. A still further answer to this objection, although not so fundamental, is that no question as to the pleadings in reference to this matter was raised at the trial.

We are, therefore, of opinion that the courts below erred in holding, upon the facts proved in this case, that the release furnished a defense to the action.

There are certain other fundamental objections made to the plaintiff’s right to recover which were overruled by the trial judge, and as the defendant’s objections and exceptions are not before us we could pass over them without consideration. But as they are fundamental, with a view to a new trial, it is quite proper that we should say something about them.

It is objected that the complaint was defective and alleged no cause of action, because it contained no allegation that leave was oh tainted from the court to bring the action, as required by § 1628 of the Code of Civil Procedure. As this action was brought to recover a balance remaining due upon a mortgage after foreclosure, if the foreclosure had been conducted in this state it would have been necessary for the plaintiff to comply with the section referred to, which is as follows: “ While an' action to foreclose a mortgage upon real property is pending, or after final judgment for the plaintiff therein, no other action shall be commenced or maintained, to recover any part of the mortgage debt, without leave of the court in which the former action was brought.” This section plainly had reference solely to a foreclosure action conducted in this state, and the leave must be obtained from a court in this state, and so it was correctly held in Mutual Life Ins. Co. v. Smith, 22 Jones & Spencer, 400.

There is a mistake in the assumption clause in describing the mortgage as one executed by Gregg and wife, whereas it was executed by Drew and wife, and the claim is made that the plaintiff must fail in this action because Mrs. Aitkin did not covenant to pay this mortgage, and that parol evidence was inadmissible to show that this mortgage was intended. A portion of the description of the mortgage assumed is clearly erroneous. It was not executed by Gregg and wife. It was, however, assumed by them. But the date, the 3d day of December, 1868, is accurate, and the ■sum secured by the mortgage, $4,000, is correctly given. This is, therefore, a case where parol evidence may be given to apply the covenant to the subject matter. There was no other mortgage of that date or amount Indeed this was the only mortgage upon the premises. The court could take proof of the surrounding circumstances for the purpose of applying the covenant to the mortgage actually intended, and a reformation of the covenant was not needful. For these views the authorities are quite abundant Green-leaf’s Evidence, §§ 297, 301: Taylor’s Evidence, §§ 1218, 1221; Wigrarn on Extrinsic Evidence, 144; Jackson v. Clark, 7 Johns., 218; Jackson v. Sill, 11 id., 201; Loomis v. Jackson, 19 id., 449; Dodge v. Potter, 18 Barb., 201; Burr v. Ins Co., 16 N. Y, 267.

It is further said that Mrs. Aitkin was a married woman, that her contract of assumption made in Mew Jersey must be governed as to its validity by Mew Jersey law, and that it was not made to appear upon the trial that under the Mew Jersey law she intended any personal liability by her covenant. But it is a sufficient answer to this claim that, while the defense was set up in the answer, it was in no way alluded to upon the trial, and it seems to have been assumed, at least by the court, that she had power to bind herself personally by such a covenant. Therefore, the point that we must assume that the common law rule still prevails in New Jersey ought not to be sustained, particularly as the statute law of that state as respects married women is similar to that of this state. Huylers Ex'rs v. Atwood, 26 N. J. Eq., 504; affirmed 28 id., 275. This case, and the New Jersey statute are also referred to in Cashman v. Henry, 75 N. Y., 103. If this point had been made at the trial the plaintiff might have proved these decisions and the New Jersey statute, and would thus have answered the defense of coverture.

It is claimed that this action was barred by the statute of limitations. The mortgage fell due on the 3d of December, 1869. The covenant of assumption was made on the 28th of December, 1870, and this action was commenced on the 11th of October, 1888, within less than twenty years, even from the date of the mortgage, and hence the action was not barred in this state, and it is the statute of limitations of this stkte which is to govern such an action commenced here. Miller v. Brenham, 68 N. Y., 87. But it is equally clear if we look at the statutes of New Jersey that the action could not have been barred if it had been instituted there.

The New Jersey judgment for deficiency did not bind this defendant. Neither he nor his wife was a party thereto. She, although supposed to be living, was actually dead. Even if the plaintiff had been informed of her death and had known that the defendant was her executor, there was no way to obtain a deficiency judgment against him, unless process could be served upon him- in that state, or he voluntarily appeared in the action there. He remaining in this state, there was no way without his consent to obtain a personal judgment there binding upon him here. Freeman v. Alderson, 119 U. S., 185; Schwinger v. Hickok, 53 N. Y, 280; Cross v. Cross, 108 id., 628; 13 N. Y. State Rep., 470; Shepard v. Wright, 113 N. Y., 582; 23 N. Y. "State Rep., 727; Booth v. Conn. Mut. Life Ins. Co., 43 Mich., 301.

At the time of her death Mrs. Aitkin stood as a mere surety for the mortgage debt, the land as to her being primarily liable for the payment thereof. The defendant could require that the land should be first sold and the proceeds applied upon the mortgage debt before resort could be made to him, or the estate represented by him. But the proceeds of the land have been first applied. The New Jersey foreclosure is in no way assailed. We must assume that it was conducted in accordance with the laws of that state. The sale was a public, judicial sale, and we must assume that the land brought its value. In the absence of proof of fraud or collusion in conducting that foreclosure, we see no reason to doubt that the plaintiff may recover in this action the amount still remaining due upon the mortgage.

There are minor exceptions taken by the defendant to the rulings of the court against him upon the trial, but as they are not vital, and are not before us, we do not deem it important to give them any attention.

The judgment should be reversed and a new trial granted, costs to abide event

All concur. 
      
       Reversing 32N. Y. State Rep., 1138.
     