
    Henry K. S. Williams, Respondent, v. John M. Cornell and Sarah K. Cornell, His Wife, Appellants.
    First Department,
    April 22, 1910.
    Pleading — complaint in action to foreclose a mortgage securing notes and judgment.
    A complaint in a suit to foreclose a mortgage will be sustained on demurrer Where in substance it alleges that the bond and mortgage were given by the defendant to the plaintiff’s assignor to secure the payment of certain notes which in their turn were-given'to secure the payment of certain1 judgments recovered by the assignor against the defendant, and that the agreement, notes, bond and mortgage, together with the moneys due or to grow due thereon or thereunder, were assigned to the plaintiff.
    (Per Ingraham, P. J., and Clarke, J.): On the transfer of the bond and mortgage to the plaintiff, his assignor’s right to enforce the judgment, so far as it included any amount due upon the bond, was suspended, although the assignee may enforce the mortgage without reference to the judgment. 1 ' (Per Laughlin, j.): The assignment of the notes and bond and mortgage carried with it the judgment for which they were collateral security.
    Scott and Hiller, JJ., dissented, with opinion.
    Appeal by the defendants, John M. Cornell and another, from an interlocutory judgment of the Supreme Court in favor of the plaintiff entered in the office of the clerk of the county of Hew York on the 28th day of January, 1910, upon the decision of the court rendered after a trial at the Hew York Special Term overruling the defendants’ sóparáte demurrers to the complaint.
    
      W. B. Syrnmes, Jr., for the appellants.
    
      Theodore S, Rumney, Jr., for the respondent,
   Ingraham, P. J.:

The question-'.as to the sufficiency of this complaint depends upon the title that the-plaintiff acquired to the debt, to secure which the mortgage was given by virtue of the assignment of the bond and mortgage from the mortgagee, which the complaint alleges was an assignment of “said agreement, notes, bond and mortgage, together with the moneys due and to grow due thereon or thereunder.” The complaint alleges the recovery of two judgments by one Peirce'against the defendant John M. Cornell, one recovered on. the 17th of July, 1908, and the other on the 15th of January, 1907, aggregating about $105,000. • It is then, alleged that for the purpose of'securing the payment of these judgments, and on the .18th of- June, 1907, the defendant John M. Cornell made an agreement with the said Peirce.in' writing whereby, among other things, “ it was agreed that as collateral security for the payment of said'judgments, upon which it was thereby agreed-that the sum of * * * $100,977.20 was then due and owing by the said defendant John HI. Cornell to the said Peirce, the latter would accept thirty certain promissory notes, aggregating in amount the said sum of * •* * $100,977.20, to be made and executed by a corporation known as the J. B. & J¡ M. Cornell Company, to bear date the 12th-day of June, 1907, and-to be payable-to the order" of said defendant John M: Cornell,, and by him to be indorsed to said Peirce.” The acceptance of these notes made by á third party and indorsed by the judgment debtor, payable at various dates in the future, undoubtedly gave to the holder of the notes a right of action against the maker and indorser, which was independent of-the right, to enforce the judgment. It would undoubtedly give to the holder of the notes, to whom Peirce had transferred them, a cause of action against both the corporation and Cornell, if not paid when they became due. They'are alleged to have been given as collateral security for the payment of the judgments, but, of course, upon payment-of the'notes, the judgments .would have been satisfied, Or upon the payment of any of the notes, the judgments would have beón reduced- by the amount paid. To entitle a party to recover upon one of these notes, it was not essential that the judgments should have been assigned with it, and if the judgment'creditor had assigned- these notes to a -third party, so that an independent liability existed in favor, of the third party against the maker and indorser of the' notes, undoubtedly a court • of equity would have restrained the judgment creditor from enforcing the judgment. . The obligation to pay these notes, therefore, existed independent of the "judgments, and the right to enforce them did not at all depend upon the ownership of the judgments by the party seeking to enforce them.

On the same day that the notes were executed and, as the complaint alleges, for the purpose of further securing the payment thereof to the said Peirce, and as further collateral security therefor,” the defendant John M. Cornell duly made and executed under ' his hand and seal and delivered to the said Peirce his certain bond •for the sum of $50,000, bearing date the 18th day of March, 1907,

■ wherein and whereby he bound himself, his executors, administrators and assigns in the sum of $50,000, upon condition that the same should be void if the said John M. Cornell, his heirs, exécutors or administrators shoiild well and truly pay or cause to be paid to the said Peirce, his executors, administrators or assigns the said sum of $50,000 on the 18th of March, 1910, and the interest thereon to be paid semi-annually ; and as collateral security for the payment of the. said bond, given to secure the payment of the said judgments as aforesaid, the defendants duly made and executed under their hands and seals and delivered to the said Peirce a mortgage covering certain real property specifically .described in the complaint ; that in and by the said mortgage it was expressly agreed that the principal sum of $50,000 should become due at the option of the said Peirce after default in the payment of interest for thirty days, or after default in the payment of any tax or assessment upon the premises mentioned for sixty days after notice and demand. Here' was an instrument under seal whereby the defendants obligated themselves to pay on a day named the sum of $50,000, secured by a mortgage given to secure the payment of • the judgments. Upon its face it was an absolute obligation to pay this sum of money. As between the parties, it was given to secure the payment of the judgments, but its acceptance by Peirce would also have the effect of postponing any right to enforce the judgments to the extent of the obligation contained in the bond ; and undoubtedly,- upon payment of this bond, the obligation of the judgment debtor on the judgments would have been released to the amount paid oh the boiid. Upon the transfer of. this bond by Peirce to a third party, I think the right of the judgment creditor .to enforce the judgments, so far as it included the amount due upon the bond, had been suspended. The statement that the judgment debtor gave a bond whereby he became obligated' to pay a definite sum of money upon a day certain) itself created an obligation which could be erif oreed by a foreclosure of the' mortgage without reference to the j udgments. The statement that the bond was given by the judgment debtor as “ collateral security ” for the payment of the judgments is necessarily an incorrect statement of the obligation of the debtor in giving the bond. The debtor, being indebted to his creditor in a sum. of money, gives a bond as evidence of the indebtedness, not as collateral security for its payment. It is a little difficult to see how. an original obligation of a debtor given to his creditor can. be given •as security for the debt. The. bond was given as evidence of the debt) and then the complaint alleges that to secure the. payment of the bond tlie mortgage in suit was given. And this,. I think, is tó be construed as the legal effect of these allegations. However that may be, Peirce, tlie judgment creditor, having accepted these notes- and this bond secured by a mortgage, assigned the notes unpaid and the' agreement hndér which the notes were given and the bond and. mort- . gage, “ together with' the - moneys due and to grow due thereon or thereunder ” to the plaintiff, who thereupon became the holder and owner thereof. . The notes were dated the 12th day of June, 1907, and were payable in equal amounts monthly' for thirty months, so that On the 7th of July, 1909, twenty-four of the notes had become due, and six notes were not yet due. On the 7th of July, 1909, these notes as well as the agreements and bond and mortgage were . assigned to the plaintiff; for value. Plaintiff thereby acquired a . good' title to the notes which Were given under the agreement. He thereby become the owner of the notes and entitled to enforce them against the parties liable thereon. He became the owner of'the bond by: which the defendant" John M. Cornell had acknowledged himself indebted to the" owner thereof in the sum of $50,000, and became ‘the ówhér of the mortgage given to secure that bond'. The bond'having become due by its terms, it seems to me the plaintiff" was entitled to enforce the obligation created by the bond and the' mortgage given" to secure its payment, irrespective . of' the title to the original judgment, and as such entitled to maintain this action.

The rule relied upon by Mr. Justice Soott in his opinion, that where an indebtedness is secured by a mortgage or ■ pledge of collateral security, the debt for which the security is given must be transferred to the party seeking to enforce the obligation, is not,

I think, applicable to a case of this kind, where. an obligation is expressly given as representing the indebtedness, and that obligation is secured by a mortgage or collateral security which has been assigned by the creditor, and where both the obligation and the property transferred to secure such obligation are owned by the party seeking to enforce them. The bond, in this case being an instrument under seal was executed by the debtor as representing a part of the obligation under the original judgment, and was accepted by the creditor as a means of securing to him the payment of the judgment. When so delivered and accepted, it became an obligation of the debtor which could be transferred by the creditor; and by the transfer of the bond and mortgage the transferee became vested with the right to enforce the payment of the bond, and to have the mortgage given to secure its payment enforced.

I think, therefore, that the court below was right in overruling the demurrers, and that the judgment appealed from should be affirmed.

Clarke, J., concurred'; Scott and Miller, JJ., dissented.

Laughlin, J. (concurring):

I concur in the affirmance of the interlocutory judgment on the ground that in my opinion the acceptance of the notes, bond and mortgage by the judgment creditor suspended his right to enforce the judgment, at least until default of the obligation created by the notes and bond, and that the notes, bond and mortgage could not be duly assigned,'as is alleged, without carrying with them the judgments, if they are to be regarded merely as collateral security for the payment thereof. It was entirely competent for Peirce to assign- the judgments,, and if that was' necessary manifestly he intended it, for if he could not legally assign the notes, bond and "mortgage without assigning ah interest in. the judgment, as' seems probable, then to give the agreement and assignment effect they should be deemed to embrace the judgments. -This clearly was the intention of the parties, and unless their acts be so construed the attempted assignment of the notes, bond and mortgage becomes a nullity. The allegation of the complaint is that the’agreement, notes, bond and mortgage, together with the.moneys due or to grow due thereunder, were “ duly assigned.” If, as has been observed, this could only be done by assigning the judgments as well, proof of the assignment of the judgments, if an express assignment were .necessary, would be admissible under this allegation, and, therefore, the complaint is sufficient to withstand the demurrer.

Scott, J. (dissenting):

The action is for the foreclosure of a mortgage. The complaint alleges the recovery of two judgments by John Peirce against John M. Cornell on which there was due on June 13, 1907, the sum of $100,977.20; that on said date an agreement was entered into betweén said Péirce and said Cornell wherein and whereby it was-agreed -that “ as collateral security ” for the payment of said judgments Peirce would accept thirty certain promissory notes, aggregating the amount then due upon the judgménts, to be made and executed by a corporation known as J. B. & J. M. Cornell Company, to bear date June 12, 1907, and to.be payable to the order of said John M. Cornell and by him to be indorsed to said Peirce, and to be payable consecutively from one to thirty months after said date; that it was further provided by said agreement that upon the failure or default of the said John M. Cornell to pay any one of said promissory notes when and at the time the same became due, unless payment thereof was duly extended in writing, the remaining notes then unpaid, and each and everyone of them, together with the bond and mortgage in said agreement mentioned, should, at the election of said Peircé, immediately become due and payable. -

The complaint further alleges that on said 13th day of June, 1907, the said John M. Cornell was indebted to said Peirce in the sum of $100,977.20 “as aforesaid” (i. <?., by virtue of the two judgments)* and “ for the purpose of further securing the payment thereof to the said Peirce and as f urther collateral security therefor,” the said Cornell executed and delivered to said Peirce his bond, under hi? hand and seal, for the sum of $50,000, bearing date March 18,1907, payable March 18,1910, with interest at five per cent, payable semiannually, and that as “collateral security for the payment of the bond given to secure the payment of said judgments as aforesaid,” the said John M. Cornell and his wife executed and delivered to said Peirce the mortgage which is sought to be foreclosed in this action. The complaint further alleges the payment of the notes above mentioned to the extent of $56,000; the failure of Cornell to pay some of the notes when due, and the election of plaintiff, as Peirce’s assignee, to consider them all due and payable.

The plaintiff’s right to prosecute this action rests upon an assignment to him from Peirce as to which it is alleged that Peirce “ duly assigned said agreement, notes, bond and mortgage, together with the moneys due and to grow due thereon or thereunder.” There is no allegation that Peirce ever assigned to plaintiff the two judgments as collateral security for which it is alleged that the agreement, notes and bond and mortgage were given, and, for aught that appears in the complaint, Peirce may still hold the judgments or may- have assigned them to some one other than the plaintiff. Thus there is set forth an original and principal indebtedness for which, as is alleged, a certain agreement, promissory notes and mortgage were given as collateral security, these words being used with respect to all of them. The collateral securities have been assigned to plaintiff, but, so far as appears by the complaint, the principal obligation has not been assigned to him. It is clear under the decisions in this State that the plaintiff fails to show that he took anything under the assignment from Peirce, as he pleads it, for an assignment of the security, without a transfer of the principal debt is inoperative. . ( Wanzer v. Cary, 76 N. Y. 526.) The legal rule is that the incident shall pass by the grant of the principal, but not the pi’incipal by the grant of the incident, and the mortgage sought to be foreclosed in this action. is but an incident to the principal debt which it is intended to secure. (Merritt v. Bartholick, 36 N. Y. 44; Manne v. Carlsan, 49 App. Div. 276 ; Smith v. Thompson, 118 id. 6.) The plaintiff, not questioning this general rule, seeks to avoid its effect by contending that the language of the assignment as pleaded, imports an intention to include an assignment of the principal debt. . This argument is based upon the fact that the assignment is of the agreement, notes and bond and mortgage, “ together with the moneys due and to grow due thereon or thereunder.” This, however, does not help the plaintiff. The moneys assigned to him were the moneys “ due and to grow due ” under the collateral securities, and. whether or not any moneys would ever become due under them must depend upon whether or not any moneys became due to. plaintiff under the principal debt, for it is only in default of payment of the principal debt that anything may.be collected from the security. Unless, therefore, the plaintiff became the owner of the principal debt and entitled to collect it, he can have no claim upon the collateral security or the “ moneys due and to grow due thereon or thereunder.” The cases cited by plaintiff in support of his contention are not in point. In Fitts v. Beardsley (28 N. Y. St. Repr. 658; affd. without opinion, 126 N. Y. 645) the assignment was of-a mortgage alone “ with all sums of money, due and to grow due thereon,” but it appeared that there was no bond or other obligation; that the mortgage itself recited that it was given “ in consideration of the sum of $40,000,” and as security for that sum. . The court “ for the purposes of this litigation,” as it expressly said, treated the mortgage as representing both the debt and the security, and affirmed the validity of the assignment. In Baldwin v. Raplee (2 Fed. Cas. 521) the assignment transferred a mortgage with the bond accompanying it. It appeared that the debt was evidenced by a note, instead of a bond, and the court held that' there -was an evident intention to transfer the debt as well as the security. In Larned v. Donovan (31 Abb. N. C. 308 ; affd., 84 Hun, 533) the mortgage was unaccompanied by any bond, note or other obligation,. but the mortgage itself recited that it -was given in consideration of an “ agreed-indebtedness then recently incurred of $1,130.” Again the court treated the mortgage as representing -both the evidence of indebtedness and the security for it, and held that the assignment of the mortgage carried with it a transfer of the debt. Campbell v. Birch (60 N. Y. 214) related to the transfer of á chattel mortgage, which was overdue when assigned. It was. held that the assignor, in consequence of the default, had acquired a defeasible title to the chattels, and that the mortgage-stood as a muniment of her title, and its assignment carried her title to the assignee. If in. fact- the judgments in the present case were assigned to the plaintiff nothing could he easier than to have so alleged. If the judgments were not assigned to him, but still belong to Peirce or some third party, Cornell might, if this complaint were to be sustained, be Subject to a double liability. (Bloomingdale v. Bowman, 21 N. Y. St. Repr. 247; less fully reported in 51 Hun, 639.) Other objections are suggested to the form of the complaint which require no extended comment further than to say that they are not well founded.

For the reasons stated the interlocutory decree should-be reversed, with costs, and the demurrers sustained, with costs, with leave to plaintiff to amend within twenty days upon payment of costs in this court and the court below.

Miller, J., concurred.

Judgment affirmed,-with costs, with leave to defendants to Withdraw demurrers and to answer on payment of costs.  