Klinke v. Samuels

• Decision Date: 17 April 1934
• Citation: 190 N.E. 324,264 N.Y. 144
• Parties: KLINKE v. SAMUELS.
• Court: New York Court of Appeals Court of Appeals

264 N.Y. 144

190 N.E. 324

KLINKE

v.SAMUELS.

Court of Appeals of New York.

April 17, 1934.

Action by Armetta M. Klinke against Charles Samuels. From an order of the Appellate Division (240 App. Div. 1008, 268 N. Y. S. 551), as resettled in 241 App. Div. 621, 269 N. Y. S. 912, which reversed on the law an order of the Special Term, defendant appeals under permission granted by the Appellate Division, which certifies questions.

Order of the Appellate Division reversed and that of Special Term affirmed, and questions answered.Appeal from Supreme Court, Appellate Division, Second Department.

Charles Burston, of Brooklyn, for appellant.

Winston E. Barrow, of New York City, for respondent.

CRANE, Judge.

The Appellate Division has certified to us the two following questions:

‘1. Is an action upon an absolute guaranty of payment of a bond and mortgage given by an independent obligor for a separate consideration within the provisions of Civil Practice Act, section 1083-b?

‘2. Do the provisions of Civil Practice Act, section 1083-b impair the obligations of the contract between the plaintiff and the defendant in violation of article 1, section 10, of the Constitution of the United States?’

Last year the Legislature passed chapters 793 and 794 of the Laws of 1933 (Ex. Sess.) to meet conditions which had arisen in the mortgage field due to financial stringency and depression. In effect these stayed temporarily foreclosure and legal action to recover the indebtedness, provided interest and taxes were paid. Section 1077-a, added to the Civil Practice Act, related to the mortgage foreclosure, and section 1077-b to an action on the debt. The stay was to be effective until July 1, 1934, and not longer. Foreclosure was not stayed or in any way prevented where default occurred in payment of interest or taxes, but by chapter 794 abuses growing out of the recovery of deficiency judgments were alleviated. Section 1083-a, added to the Civil Practice Act, reads in part: ‘Such deficiency judgment shall be for an amount equal to the sum of to amount owing by the party liable as determined by the judgment with interest, plus the amount owing on all prior liens and encumbrances with interest, plus costs and disbursements of the action including the referee's fee and disbursements, less the market value as determined by the court or the sale price of the property whichever shall be the higher.’ Section 1083-b relates to actions at law on the indebtedness. It reads in part: ‘In any action * * * commenced * * * to recover a judgment for any indebtedness secured by a mortgage on real property and which originated simultaneously with such mortgage and which is secured solely by such mortgage, against any person or corporation directly or indirectly or contingently liable therefor, any party against whom a money judgment is demanded, shall be entitled to set off the fair and reasonable market value of the mortgaged property less the amounts owing on prior liens and encumbrances.’

This last section is the one now before us. The 127th Street Building Corporation executed and delivered its bond and mortgage to the plaintiff in the sum of $10,500 on June 11, 1926, the amount becoming due June 11, 1929. On the same day that these instruments were given, the defendant guaranteed in writing the payment of the principal and interest, stipulating: ‘In the event that the principal and interest of the mortgage is paid by me in full, the said mortgage is to be assigned to me.’ The indebtedness was the bond of the mortgagor, the security was the mortgage, and the guaranty was a liability contingent on the debtor's default. This was all one transaction.

The default having occurred, this action has been brought against the guarantor who desires to plead the relief given him by section 1083-b of the Civil Practice Act, which is that judgment be limited to the difference between the amount due and the value of the mortgaged property. The Special Term granted the motion of the defendant to plead this defense, but the Appellate Division has denied it on the ground that this section does not cover the case.

That the mortgagor-maker of the bond comes within the section is not questioned, so likewise do those ‘directly or indirectly or contingently liable therefor.’ To this latter class belongs the defendant. This action is brought to recover a judgment for an indebtedness secured by a mortgage on real property. So reads the statute. It is brought against one contingently liable therefor, the guarantor, whose liability, called indebtedness, originated simultaneously with the mortgage. Only by so reading the section could it ever apply to a person contingently liable for such a...