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8. Mortgages 401 (5)—Owner not willfully defaulting in payment of interest on first mortgage held relieved from forfeiture under stipulation in second mortgage.

In action to foreclose a second mortgage, under a stipulation therein for default in interest on a first mortgage, wherein it appeared that the owner was misled by different dates fixed in various mortgages as to date for payment of interest, and there was no willful neglect in not paying it, and where it paid such interest as soon as possible after notice of lis pendens, and where plaintiff was not prejudiced, the owner will be relieved of the forfeiture on payment to plaintiff of taxable costs, on failure to pay which, judgment will be directed for plaintiff, with costs. Action to foreclose a mortgage by James A. Trowbridge against the Malex Realty Corporation and the College Holding Company, impleaded with others. Judgment for defendant College Holding Company, relieving it of forfeiture for nonpayment of interest on prior mortgage, on payment of taxable costs to plaintiff, and in that case dismissing the complaint, and on failure to pay such costs directing judgment for plaintiff, with costs.

Middlebrook, & Borland, of New York City (Middleton S. Borland, Percy F. Griffin, and William D. Smith, all of New York City, of counsel), for plaintiff.

Morrison & Schiff, of New York City (Jacob R. Schiff, of New York City, of counsel), for defendant College Holding Co.

Samuel Schack, of New York City, for defendant Goelet Lansing Co., Inc.

DAVIS, J. This case was tried in equity on November 12, 1919. At the conclusion of the trial the court expressed the opinion that the plaintiff was entitled to a judgment and announced a decision in plaintiff's favor. After the submission of the pleadings, stenographer's minutes of the trial, exhibits, and briefs, the court had doubts as to the correctness of certain of its rulings at the trial, whereupon certain. facts were stipulated by the attorneys for the respective parties to supplement the record of the trial and to avoid the reopening of the case; the parties reserving the right to object to any of such facts on the ground that they are irrelevant or immaterial to the issues. The facts so stipulated have reference to certain matters which had heretofore been excluded on objection by plaintiff's counsel, and also to certain matters which had not been presented or brought out at the trial. After a careful examination of the whole case thus submitted, the court is constrained to reverse its previous determination of the case on the day of trial, and has arrived at the conclusion and has decided that the proper disposition of this case is as hereinafter determined. The rulings made on objections by the plaintiff's counsel on the day of the trial as to certain evidence are therefore reversed and disposed of as indicated on the margin of the stipulation referred to above.

The action is brought to foreclose a purchase-money second mortgage upon the premises No. 728 West 181st street, New York City, given on or about January 24, 1919, by the Malex Realty Corporation,

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

(183 N.Y.S.)

one of the defendants, to the plaintiff to secure the payment of $30,500 on the purchase of the property by such defendant from plaintiff on said date. Thereafter, and on January 24, 1919, the Malex Realty Corporation sold the premises No. 728 West 181st street and also the adjoining premises No. 736 West 181st street, to the College Holding Company, one of the defendants in this action. At the time of such sale each of said parcels was incumbered by a prior mortgage. On No. 728 West 181st street there was a prior mortgage made by John M. Linck Construction Company, Incorporated, to Lawyers' Title Insurance & Trust Company, dated February 20, 1911, and recorded on the same day in the office of the register of the county of New York in section 8, Liber 74 of Mortgages, page 346. This mortgage was given to secure the payment of $142,000, payable February 20, 1914, with interest at 5 per cent. from February 20, 1911, to be paid on the 1st day of March next ensuing and semiannually thereafter. Such mortgage was thereafter assigned to the Lawyers' Mortgage Company, which corporation has ever since been and now is the owner and holder thereof. In paragraph "third" of said mortgage is the following provision:

"And it is hereby expressly agreed that the whole of said principal sum, or so much thereof as may remain unpaid, shall become due at the option of the said mortgagee after default in the payment of any installment of principal, or in the payment of interest for thirty (30) days, or after default in the payment of any tax or assessment for sixty (60) days after notice or demand, or in case of the actual or threatened demolition or removal of any building erected on the said premises, anything herein contained to the contrary notwithstanding," being the usual 30-day interest clause included in the first mortgage form of the Lawyers' Title Insurance & Trust Company.

At the time of the commencement of this action there remained unpaid on account of the principal sum $130,500, $2,500 having been paid on reduction thereof by the College Holding Company between the date when it acquired title to the premises No. 728 West 181st street, New York City, and the date of the commencement of this action. Subsequent to the assignment of such mortgage to the Lawyers' Mortgage Company, and before the commencement of this action, by extension agreement in writing, the interest thereon was made payable quarterly on the 1st day of March, June, September, and December of each year. The first mortgage on the premises No. 736 West 181st street was made by John M. Linck Construction Company, Incorporated, to Lawyers' Title Insurance & Trust Company, dated April 7, 1911, and was given to secure the payment of $145,000, to be paid on April 7, 1914, with interest to be computed from April 7, 1911, at 5 per cent., and to be paid October first next ensuing and semiannually thereafter. This mortgage contained a provision similar to that in the first mortgage on No. 728 West 181st street and was thereafter assigned by the Lawyers' Title Insurance & Trust Company to the Lawyers' Mor.gage Company, which corporation has ever since been and now is the owner and holder thereof. Thereafter, and before the commencement of this action by extension agreement in writing, the interest on the mortgage was made payable quarterly on the 1st day of April, July, October, and January of each year. The

second mortgage for $30,500, and the one now in suit, was payable, principal, in equal installments of $625 each the 1st day of April, July, and October, 1919, and on the 1st day of January, April, July, and October in each of the years 1920, 1921, 1922 and 1923, and the balance of $18,625 on the 1st day of January, 1924, with interest thereon from December 1, 1918, at 6 per cent., payable April 1, 1919, and quarterly thereafter on the 1st day of July, October, January, and April of each year.

The following covenants, among others, are contained in the second mortgage in suit: (1) That the mortgagor will pay the indebtedness as hereinbefore provided; (4) that the whole of said principal shall became due after default in the payment of any installment of principal or interest for 20 days, or after default in the payment of any taxes, water rates, or assessments for 30 days after notice and demand; (6) that the mortgagor will pay all taxes, assessments, and' water rates, and, in default thereof, mortgagee may pay the same; also the following provisions:

This mortgage is subject and subordinate to a mortgage given to secure the payment of $132,500, originally $142,000 and interest, recorded in the office of the register of the county of New York in Liber 74 of Section 8 of Mortgages, page 346, now a prior lien on said premises. And it is expressly agreed that, should any default be made in the payment of the interest on said prior mortgage, and should such interest remain unpaid and in arrears for the space of 10 days, or should any suit be commenced to foreclose said prior mortgage, then the amount secured by thiş mortgage and the accompanying bond shall become and be due and payable at any time thereafter at the option of the owner or holder of this mortgage. And it is hereby expressly agreed that should any default be made in the payment of the interest on said prior mortgage the holder of this mortgage may pay such interest, and the amount so paid, with legal interest thereon from the time of such payment, may be added to the indebtedness secured by this mortgage and the accompanying bond and shall be deemed to be secured by this mortgage and bond and be collected thereunder.

The complaint in this action alleges: That the defendants and each of them have failed to comply with the terms of said bond and mortgage by omitting to pay an installment of interest upon a prior mortgage (the one heretofore mentioned) covering said premises, which interest amounted to $1,794.38 and became due and payable on March 1, 1919. That said installment of interest has remained in arrears for the space of more than 10 days since it became due and payable, and is now in arrears and unpaid, and that the plaintiff has elected and declared, and does hereby elect and declare, that because of such default and its continuance the whole of said principal sum of $30,500, and all arrears of interest thereon, be and become immediately due and payable, and demands judgment for foreclosure by reason of such default in the payment of such installment of interest.

The College Holding Company was the sole defendant answering, and in its answer, among other things, alleges that it paid to the Lawyers' Mortgage Company on March 26, 1919, the interest which became due on March 1, 1919, on the prior mortgage, and that it was always ready and able to pay the same when due, but was misled in believing that the interest was not due and payable until April 1,

(183 N.Y.S.)

1919, by the fact that the interest on the prior mortgage on the adjoining property, No. 736 West 181st street, was not due and payable until April 1, 1919, and asks to be relieved of its default, if any, in the payment of such installment of interest.

The lis pendens, summons, and complaint were filed on March 24, 1919. On or about March 25th an officer of the College Holding Company saw in one of the daily newspapers a notice of the filing of such lis pendens, and thereafter telephoned one of the associates of plaintiff's attorneys to ascertain the reason why such action had been taken, and was informed that it was on account of a default in the payment of the interest on the first mortgage. There was then a further conversation as to the discontinuance of the action, if the in terest was then paid; such defendant claiming that the said attorneș agreed to discontinue the action if the interest was paid, and the attorneys for plaintiff denying that any such statement was made. However that may be, it appears that about 10 a. m., on the 26th of March, 1919, the College Holding Company paid to the Lawyers' Trust Company the interest due on the first mortgage and then sent the receipt for such payment to the said attorneys for plaintiff for their inspection. This payment was evidently made as soon as possible after the College Holding Company had notice of the filing of the lis pendens. The intervening day, March 25th, was observed as a holiday by the people of the city of New York by reason of the reception given to the Twenty-Seventh Division, U. S. A., upon its return from France, and the office of the Lawyers' Mortgage Company was not open for the transaction of business on that day.

Before such interest was paid, however, the summons and complaint were served on the defendants Abel King and Isaac Schosch at 9:30 a. m. on March 26, 1919. These parties were the first defendants to be served. Between the time of the commencement of this action and up to the time of trial the defendant College Holding Company has paid the following amounts for the specified purpose to plaintiff on account of the mortgage in suit upon stipulations that were made and accepted "without prejudice to the rights of either plaintiff or any of the defendants in this action, and without affecting the said action in any manner whatever, except in so far as the payments might decrease the amount due on the said mortgage under foreclosure," to wit: On April 4, 1919, the sum of $1,235, representing $625 of principal due the 1st day of April, 1919, and interest at 6 per cent. thereon from December 1, 1918, to April 1, 1919; on July 2, 1919, $625 of principal, due July 1, 1919; on July 11, 1919, $448.12, interest at 6 per cent. from April 1, 1919, to July 1, 1919; on October 3, 1919, the sum of $1,063.75, representing principal due October 1, 1919, and interest at 6 per cent. thereon from July 1, 1919, to October 1, 1919.

[1, 2] The question before the court is whether equity can and will under the circumstances in this case grant relief from the default in the payment of the interest on the prior mortgage. That the stipulation contained in the second mortgage providing for the becoming due immediately at the mortgagee's election of the whole principal

sum and accrued interest on the default in payment of any installment of the principal or interest after 20 days from April 1, 1919, is valid and enforceable there can be no question. Nor is there any question that the similar stipulation as to a default in payment of taxes and assessments for more than 30 days after notice or demand is also valid and enforceable.

"The foreclosure of a mortgage is equitable in its nature, although based on legal rights, and it is the province of a court of equity to see to it that a party invoking its relief shall have dealt fairly before relief is given." Germania Life Ins. Co. v. Potter, 124 App. Div. 814, 817, 109 N. Y. Supp. 435, 437.

[3-5] The plaintiff contends that the provision in the second mortgage in regard to a default in the payment of interest on the first mortgage must be construed by the same rule of law applicable to a default in the payment of interest on the mortgage debt secured by the second mortgage, and cites cases which they claim support their contention. The stipulation as to a default in the payment of installments of principal of the debt or interest thereon is, however, entirely different in its nature and purpose from the stipulation as to defaults in the payment of taxes and assessments and other incumbrances payable to third parties. The stipulation as to a default in the payment of installments of principal of the debt thereof and interest thereon is made to secure the advance payment of the debt, to accelerate the time the principal debt shall become due in case the interest is not promptly paid. It has reference only to the payment of the debt secured by the mortgage, a debt which the mortgagor has agreed to pay in the manner provided, and failure to comply with the terms of his agreement to so pay the debt is not a default in the nature of a penalty or forfeiture. This clause, because it provides for the advance payment of the debt under certain conditions, is often called the acceleration clause. There is nothing unconscionable in such an agreement. Under the authorities in this state no relief as a rule will be granted from such a default when nothing is done on the part of the mortgagee to render it unconscionable for him to avail of it. On the other hand, it is usual to provide in mortgages that in case of a default in the payment of taxes and assessments and other incumbrances to third parties the mortgagee may elect the whole debt to become immediately due. These latter stipulations refer solely to the preservation of the security given for the debt. They are independent and separate conditions and stipulations from those providing for a default in payment of the installments of principal of the debt and interest. They are inserted in the mortgage for the purpose of preventing the security becoming impaired, and to keep it, so to speak, in the same status as when the collateral security was given, to keep the security intact.

The payment or nonpayment of the taxes does not pay the debt. In fact, no part of the debt, either installment of principal or accrued interest, may be due (as in the present case), and yet under this clause the mortgagee has the right to elect the whole principal to become due immediately upon a default in the payment of the taxes, etc. This clause has no relation to the payment of the debt. It is true that the

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