
    PHILIP KNOBLOCH, Respondent, v. WILLIAM ZSCHWETZKE, et al., Appellants.
    
      Mortgage debt, assumption of by grantee—assumer becoming %mnaipal.—Discharge of personal liability of assumer, effect of on liability of mortgagor —Payment by mortgagor after discharge of assumer cannotbe recovered against the assumer—Neither the not giving notice of his transaction with the mortgagee nor the fact that it was had pending a foreclosure, imposes a liability on the grantee in favor of the mortgagor—Foreclosure judgment no adjudication.
    
    One who takes a conveyance of real estate subject to a mortgage thereon made by his grantor to secure the grantor’s bond, and assumes the payment of the mortgage, becomes the principal debtor to the mortgagee, and his grantor becomes but a surety for him.
    If such assumer by an arrangement between himself and the mortgagee, • discharges his personal liability for the mortgage debt, his surety, the mortgagor, is also discharged.
    If the mortgagor thereafter on a claim by the mortgagee made against him personally for the mortgage debt, pays a sum of money for the discharge or release of such claim, he cannot recover the amount so paid by him, from his grantee, although his grantee failed to advise him of the transaction which resulted in the discharge of the grantee from personal liability.
    The facts that the payment made by the mortgagor was to obtain a discharge from a deficiency judgment entered against him only, in an action to foreclose the mortgage, to which action the mortgagor and his grantee were parties, by the complaint in which the usual deficiency judgment was demanded against each of them ; and that the arrangement between the grantee and the mortgagee, by which the grantee was discharged from personal liability was made pending the action, the plaintiff then stipulating to take no deficiency judgment against the grantee, which was carried out—do not impose on the grantee any liability to repay to the mortgagor any sum which he may have paid to procure a discharge from a deficiency judgment rendered against him in the foreclosure action.
    The judgment in the foreclosure action comprised no adjudication as between the parties to this action.
    Before Sedgwick, Oh. J., and Freedman, J.
    
      Decided June 10, 1886.
    
      Appeal by defendants from judgment entered on verdict for plaintiff as directed by the court; and from order denying motion for new trial made upon the judge’s minutes.
    The facts sufficiently appear in the opinion.
    
      John P. Schmitt, attorney, and Jacob A. Gross, of counsel for appellants,
    argued :—I. The question as to the liability of these defendants for a deficiency on a sale of the mortgaged premises was in issue in the suit brought by Wiener in the supreme court, was tried by that court and decided in favor of the defendants. This plaintiff, Knobloch, having been a party to that action is bound by the proceedings therein, and the judgment rendered exonerating the defendants is a complete bar to this action (Pray v. Hegeman, 98 N. Y. 351; Perry v. Dickerson, 85 Ib. 345; Guest v. Brooklyn, 19 Ib. 624; Smith v. Smith, 19 Ib. 634 ; Tuska v. O’Brien, 68 Ib. 446 ; Stowell v. Chamberlain, 60 Ib. 212).
    II. Wiener, the plaintiff, in the supreme court, could not by assigning the judgment for deficiency convey to his assignee any greater right than he possessed himself. Knobloch, the present plaintiff, by obtaining a release from the assignee is only subrogated to the claims of Wiener as against Zschwetzke and Kircheis. As this claim had been discharged by Wiener for a valuable consideration, no right of action passed to Knobloch. It is no answer to say that Knobloch was ignorant of the fact that the principal debtors (Zschwetzke and Kircheis) had been released by the creditor (Wiener). Standing only in the position of surety he should have inquired whether he was any longer hable. His neglect to do so imposes upon him the loss, if any.
    III. The legal effect of the discharge of Zschwetzke and Kircheis was also to exonerate the plaintiff, Knobloch, and the judgment for a deficiency, as against him, was probably unauthorized. But as he was a party to the action, he has only himself to blame if he has failed to avail himself of his legal rights.
    IV. Independently of the effect of the former adjudication, the result would be the same if Wiener had settled with Zschwetzke and Kircheis, and released them without the knowledge of Knobloch. When Knobloch conveyed to Zschwetzke and Kircheis, and the latter assumed payment of this mortgage, they became the principal debtors and Knobloch the surety. Wiener, the holder of the security, having knowledge of this relation, was bound by it and under an equitable obligation to do nothing to affect it. By releasing Zschwetske he also released Knobloch, and could thereafter maintain no action against him (Paine v. Jones, 76 N. Y. 274 ; Calvo v. Davies, 73 Ib. 211; Rainbow v. Juggins, 29 Eng. Repts. 224, note).
    
      Otto Meyer, attorney and of counsel for respondent,
    argued: I. The release, we contend, did not have the effect claimed by the appellants, for the following reasons, viz : (o.) The assumption of said mortgage by defendants constituted in law an absolute covenant to pay it and to indemnify and save harmless the plaintiff, not only from loss but also from liability (Cornstalk v. Drohan, 71 N. Y. 9 ; Hume v. Hendrickson, 79 Ib. 117). (b.) But notwithstanding this covenant, this plaintiff still remained liable for the payment of the mortgage to the mortgagee, and the principal debtor to said mortgagee, and no act of plaintiff could change this relation or release him from said liability (Mead v. Parker, 29 Hun, 69 ; Marshall v. Davis, 78 N. Y. 414). (c.) It was from this liability defendants covenanted to relieve plaintiff by paying the mortgage. They now claim they have performed their covenant by making a settlement with the mortgagee for their own release and allowing and consenting to a judgment for deficiency to be entered against this plaintiff. This judgment by its very terms, while it relieves defendants, holds plaintiff liable. This judgment was rendered upon notice to and appearance by defendants, was approved and consented to by the defendants, and they are bound by it; as to them it is res adjudicata that notwithstanding their said release plaintiff was still liable for said deficiency, and they cannot now show the contrary for the purpose of relieving themselves from liability (Kip v. Brigham, 6 Johns. 158 ; Kanitski v. Meyer, 49 N. Y. 571).
    II. Even if the said judgment had not made the matter res adjudicata, defendants would have shown no defense, because their said release did not have the effect of relieving plaintiff from liability to the mortgagee on his original obligation ; for (a.) The stipulation and release were made after plaintiff was in default in said action, and after plaintiff’s rights therein were fixed as against this plaintiff. It was matter occurring subsequent to the accruing of such right. (&.) Plaintiff would have been liable to the mortgagee if defendants had not been parties to the foreclosure action, and hence, the release of defendants from claim therein did not release plaintiff (Cornstalk v. Drohan, 71 N. Y. 7; Campbell v. Smith, 71 Ib. 26). (c.) The judgment in the foreclosure action reserved the right of mortgagee against plaintiff, and hence, plaintiff was not released (Morgan v. Smith, 70 N. Y. 545 ; Palmer v. Purdy, 83 Ib. 144). (d.) The release of defendants was one releasing two of several joint debtors and reserving rights against the others, and under the statute in such cases provided did not have the effect of releasing the other joint debtors (Irvine v. Wood, 56 N. Y. 635 ; Bancroft v. Winspear, 44 Barb. 209 ; Morgan v. Smith, 70 N. Y. 537).
   By the Court.

Sedgwick, Ch. J.

The plaintiff mortgaged certain real estate owned by him, in the sum of $8,000, as security for the payment of his bond in that sum. One Wiener was mortgagee. Afterwards the plaintiff conveyed the real estate to the defendants in this action. The defendants, by the conveyance, assumed and agreed to pay the mortgage. Subsequently the premises were conveyed to other parties, who also assumed and agreed to pay the mortgage. A breach of the conditions of the bond having occurred, Weiner began an action for the foreclosure of the mortgage, making parties defendant the present plaintiff, and the present defendants, and demanding against each the usual judgment for deficiency. The present plaintiff did not put in an answer or in any way make a defense in the foreclosure action. The present defendant, Zschwetzke, interposed an answer that he had been released from liability upon his covenant by Wiener, having extended to the mortgagor time for payment of the bond and mortgage. Thereupon, the attorney for plaintiff in the foreclosure, stipulated that he would not apply for any judgment for deficiency against the present defendants, and the answers were withdrawn. A writing produced on the present trial recites, that the differences between the present defendants and the plaintiff in the foreclosure were adjusted, it being proved that the defendants paid $650. The findings in the foreclosure action declare that Wiener’s claim against the present defendants was discharged. The foreclosure action proceeded to judgment directing sale of the property, and that the present plaintiff pay any deficiency, which resulted in there being final judgment against the present plaintiff in the sum of $4,081. This judgment for deficiency was assigned to one Stern, and the present plaintiff paid Stern $600 to procure a release from the judgment, and Stern gave such a release. The plaintiff now brings this action to recover the amount paid by him to Stern.

The plaintiff’s cause of action as claimed by him, is legal in its nature, for the breach by defendants of their promise to pay the mortgage made by the plaintiff. To sustain the action, it is necessary to show that the defendants have not paid in performance of their promise. The fact that the plaintiff had paid the mortgage would not of itself show that the defendants had not previously themselves paid it. The same consideration applies to the payment by plaintiff of the deficiency judgment. If the defendants had paid the mortgage, the only obligation between them and the plaintiff was thereby performed. The defendants never promised to pay any judgment for deficiency that might be entered against the plaintiff. It may be remarked that the litigation of the foreclosure action did not comprise any adjudication as between the present parties, as to the defendants’ assumption of the mortgage. The significance of that action in relation to the rights founded upon the assumption, was that it liquidated the amount, which should be applied in reduction of the amount of the mortgage, under the right the parties had that the mortgagee should first resort to the land for satisfaction of the bond.

It is not necessary to ascertain how a plaintiff in such an action is to prove a breach of the agreement. For the defendants substantially defend by setting up that in equity the defendants were the principal debtors to the mortgagee, and that the plaintiff was but a surety for them, and that they extinguished the demand of the mortgagee against themselves, so as to extinguish any demand against the plaintiff, their surety.

To sustain this defense, the defedants proved that in the foreclosure action they interposed a defense, and that upon payment by them of $650 and the withdrawal of their answer, the differences between them and the mortgagee, the plaintiff in the foreclosure action, were adjusted, and the claim against them discharged. When the principals’ liability ceased, the plaintiff’s liability as surety ceased. Calvo v. Davies (73 N. Y. 211), decides one form of such a question, and it is unnecessary to add further authorities. From the time of this discharge, the mortgagee was bound to respect the rights of the plaintiff as surety. He ceased to have any right of action against the plaintiff, and the plaintiff ceased to be liable (Grow v. Garlock, 97 N. Y. 81; Hubbell v. Carpenter, 5 Barb. 520; Delaplaine v. Hitchcock, 4 Edw. 521; Brown v. Williams, 4 Wend. 360).

The fact is, that the plaintiff paid the deficiency judgment in ignorance of his having been discharged. Does this make the defendants liable ? It does not, unless there was some legal duty on their part to inform the plaintiff of what they had done, and even then the action would be for a violation of that duty. The plaintiff being only secondarily liable, would make him the party to inquire whether the party primarily liable had not satisfied the claim, if there were a duty as to the matter resting on one or the other. There was a certain presumption that the defendants had not failed to exonerate their surety, the plaintiff. But indeed, it appeared upon the record of the foreclosure proceedings that the claim had been discharged. That fact was found by the court. The plaintiff chose not to appear, and not to examine, and not to learn his rights. It is hardly doubtful that the plaintiff was not fairly dealt with, but if that were a consideration pertinent to the determination of this case, it must also be considered that the defendants are not shown to be responsible for this.

There may be a vague thought that the parties all being charged as defendants in the foreclosure suit, might justifiably lead the plaintiff to believe that during its pendency, no change in the relations between the defendants would take place. This has no weight in depriving the defendants of their rights, because the plaintiff was bound to know, as matter of law, that even after judgment, he retained the rights of surety.

Judgment reversed and new trial ordered, with costs to abid event.

Freedman, J., concurred.  