Earle v. Gorham Manufacturing Co. (2 A.D. 460, 1896)

Barrett, J.:

The defendant company has proceeded throughout" upon ant erroneous view of its rights. There never" was a forfeiture under; its silverware mortgage. That mortgage was entirely independent of the Hormandie mortgage. The principal relation which the latter bore to the former was that it extended the original terms of payment. It did not alter any- of the other provisions or conditions, of the silverware mortgage. On the contrary, it provided that that security was not to be changed in any respect, and that the extension of the terms of payment granted by the new mortgage was in consideration of the further collateral security which that new mortgage furnished. The new notes specified in the Hormandie mortgage were substituted for the old notes specified in the silverware mortgage. The understanding was that the old notes should remain in the company’s possession, but should not be negotiated, and when all the new notes were paid, the old notes were to be canceled. It will be observed, however, that the new notes aggregated some $3,500 more than the old. This was because the company had delivered additional silverware to the extent in value of about $3,500, between the time when the silverware mortgage was given and the time of the execution of the Hormandie mortgage. Thus,, this additional silverware was not covered by either mortgage, while.' the silverware actually covered by the original mortgage was charged-with the payment of some $3,500 more than the sum with which it. had previously been charged. The defendant company contends., that there was a forfeiture under the silverware mortgage the moment the mortgagor* failed to pay at maturity any one of the-notes given upon the execution of the Hormandie mortgage. It-admits that this forfeiture did not result from the breach of any of.' the terms or conditions of the Hormandie mortgage. This admission, was compelled by the seventh condition of the Hormandie mortgage, which expressly postponed forfeiture thereunder for thirty days. after default in the payment of any of the new notes, it being con- • ceded that the note- upon which the present forfeiture is claimed was fully paid before the expiration of these thirty days. The hard doctrine which the defendant company invokes is that these thirty-days of grace, only apply to the forfeiture of the additional col- - lateral security furnished by the new • or Horhaandie mortgage. Upon this it is contended that, as the security of the old mortgage-, was not to be changed in any respect, and as the thirty-day clause is-, not to be found therein, there was a forfeiture thereunder the-moment a default occurred in the payment at maturity of any one of the new notes. There is nothing in the original mortgage .to justify this contention. It was the clear intention of the parties, when the Normandie mortgage was given, fo limit ad interim forfeiture to the additional collateral security thereby furnished. That was deemed sufficient without disturbing the original security, or impressing .upon it an ad interim foreclosure clause. If this was not the understanding, of the parties, it is difficult to account for the plain and precise provision on this head inserted in the Normandie mortgage, and the entire absence of any such provision in the silverware mortgage.

It may he argued that the parties originally acted upon the theory that the law itself engrafted such an ad interim forfeiture and foreclosure clause upon the silverware' mortgage. The draughtsman’s phraseology, however, precludes any such theory or idea. The provision authorizing a sale upon default reads in this wise: And the said party of the first part * * * [do] covenant and agree to and with the said party of the second part * * *. that in case default shall be made in the payment of the said sum above ■mentioned, then,” etc. To aid the company in effecting an unconscionable forfeiture, we are asked tb give these italicized words a most elastic, strained and unreasonable, construction.

What is the said sum above mentioned ? The clause in which this sum is mentioned reads as follows :

“ Upon condition that if the said .party of the first part shall and -do well and truly pay unto the said party of the second part, their executors, administrators or assigns, the following promissory notes, to wit:

.Note dated N. Y., June 1,1893, at 6 mos. for........ $11,694 30

“ “ “ ' . “ “ “ 9 “ “ ........ 11,694 32

■“ “ “ ' “ • “ “ 12 '■ “ “ .....'.... 11,694 33

$35,082 95

then these presents shall be void.”

There are several sums' here mentioned, and there is one total sum. The sum referred to in the “ sale ” clause is clearly that total sum. The defendant would have us construe the sale clause as though it .■read the said sum, or any of the said sums above mentioned.” We cannot insert these additional words in aid of a forfeiture. Nor does the context admit of any such amplification. The words “ the said sum above mentioned ” are again used later on in the “ sale ” clause. We cannot well give them there a different meaning. Should we give them the same meaning as the defendants ask us to give them when reading the earlier part of the clause, let us see what would result. Under the earlier phrase, construed to read “ upon default in the payment of the said sum, or any of the said sums above mentioned,” the defendants are authorized to sell and dispose of “ the said goods or chattels ” ■— all of them — and out of the money arising therefrom to retain and pay “ the said sum above mentioned ” ■—■ precisely the same words, it will be observed — and all charges touching the same ; rendering the overplus, if any, unto the mortgagor. Now, if the “said sum above mentioned” means any one of the said sums above mentioned, then it is only the one of such sums as to which there is a default which can be “ retained and paid.” The entire overplus must be “ rendered ” to the mortgagor. Surely the parties did not mean that. The defendants scarcely desire a construction which would involve foreclosure and sale to pay an installment, and the loss of the security as to the residue. But if they did not mean that in the later use of the words, they did net mean it in the earlier. They cannot mean one thing in the one connection and another thing in the other. “ The said sum above mentioned ” was not the sum' due on the first unpaid note in the default connection, and the totality of the debt in the sale and payment connection. It is plain that it meant the total sum in both connections. ■

But this is not all. The words in question occur again in the quiet and peaceable possession clause. Here it is provided that, “ until default be made in the payment of the said sum of money, [the mortgagor is] to remain and continue in the quiet and peaceable possession of the said goods and chattels, and the full enjoyment of the same.” There is not a break in the entire condition from the quotation above unto the end. The covenants as to default and peaceable enjbyment follow the formal condition directly, and are part and parcel thereof. They must all be read together. So reading them, the condition is not broken until default is made in the payment of the entire sum specified therein. Thus it is upon default in the payment of the entire sum, namely, the sum of $35,082.9.5, therein “ above mentioned,” that the title becomes absolute. It is upon that default, and that alone, that the right to seize and sell, the property becomes absolute. And it is npon that default, and "that alone,, that the mortgagor loses his- right to remain, and continue in quiet and peaceable possession. This construction is in, harmony with the condition proper, and with every ■ one of the sequences, which follow. Any other construction would be incongruous and vacillating, and would require the court really to reframe the con-, dition so as to mature the entire debt upon the non-payment of any one of the notes.

The rule, that where a mortgage is payable in installments the mortgagor cannot, redeem without paying the whole debt is, of course, inapplicable. The right to foreclose was by the express, terms of. the mortgage limited to default in the payment of the whole debt. Thus the operation which the law might otherwise, •have given to the naked condition (as suggested by the learned referee in Leadbetter v. Leadbetter, 32 N. Y. St. Repr. 890, and in Bragelman v. Daue, 69 N. Y. 74), is varied by the provisions of the contract itself. As there was no forfeiture, there was nothing to redeem. The mortgagee has simply taken possession unlawfully. Indeed, the installment rule has almost invariably been laid down in, cases where,, by the terms of the mortgage, the right "to foreclose is. expressly • granted upon default in the payment of any part of the-' debt; Such was the fact in the extreme case of Halstead v. Swartz (46 How. Pr. 291). The condition there was that the . plaintiff should pay the notes “ as they became due,” but in case of. non-payment “at. the time or times above "mentioned,” then the defendant was authorized to seize and sell. Só in Leadbetter v. Leadbetter (125 N. Y. 292, affg. 32 N. Y. St. Repr. 890) the condition, was, as said by O’Brien, J., “ that the defendant should pay the-.notes as they became due, and that, in case of default in the payment of tile notes or. cmy of them when due,” then the said sum of $3,000\ (the entire debt): should become due instantly, and the mortgagee or;. his assigns should have the right to take possession, etc.

It follows that whether the default clause in the silverware mortgage, or that of the Hormandie mortgage, governs, there was no forfeiture, and the defendants have acted unjustifiably throughout.

But even if there had been a forfeiture, it was distinctly waived. This is not an action to redeem the property. Such an action is to reheve from a forfeiture. There the mortgagor must pay or tender the whole debt before bill filed. This action, however, proceeds upon the theory that there is no forfeiture to be relieved from, and consequently nothing to be redeemed. The claim is that, by the waiver, forfeiture, if any, was completely wiped out; that it then became non-existent; that consequently the original status was restored; and that now the rights of the parties are precisely the same as though the .forfeiture had never been. ■

The question which runs through the cases on this head is whether atender of the whole amount due after forfeiture is sufficient in law to effect such a waiver.. The current of authority favors the conclusion that such a tender is insufficient to create a waiver; It is undoubtedly sufficient upon a bill to redeem. But to create a waiver there must be an acceptance by the mortgagee. The latter is not bound to accept the amount due and restore the property. He may insist upon his forfeiture and leave the mortgagor to his bill to redeem. On the other hand, he may waive his right of forfeiture, and he does so upon acceptance of the tender. (Hutchings v. Munger, 41 N. Y. 158; Van Loan v. Willis, 13 Daly, 281; Patchin v. Pierce, 12 Wend. 61; O'Rourke v. Hadcock, 114 N. Y. 550.)

Where the forfeiture results from the non-payment- of an installment the mortgagor cannot redeem without a tender of the whole "amount of the mortgage debt. A tender of the unpaid installment is insufficient either for redemption or to effect a waiver. To redeem there must be a tender of the whole debt. To effect a revesting of the title at law there must be a-tender and acceptance of the whole debt. But to effect a waiver of the forfeiture and the revesting of the original status under the mortgage, there need only be a tender and acceptance of the unpaid installment. The only case we have been able to find which militates against the latter doctrine is Patchin v. Pierce (12 Wend. 61). There, however, the court was dealing with the title at law. What the court really held was that the acceptance of a part of the money secured by the mortgage does not operate to -reinvest the title in the mortgagor so as to enable him to recover at law. It was assumed that the waiver of the forfeiture could produce no other result, and Helsor, J., reasoned that, as that particular result did not follow, there was no waiver. The reasoning overlooked the other result which does" follow the waiver, namely, the right in equity to a restoration of the original status under the -mortgage. This latter view is. clearly outlined in the later cases which have'been cited. Thus, in Hutchings v. Munger (supra.) where, even upon a conditional sale, the entire amount of the purchase money had become due and was unpaid,, a part payment was held to effect a waiver of the forfeiture. “ This,” said Grover, J., “ was an assent by the defendant to the delay, and a waiver of the forfeiture. * * * It was a recognition of the contract as still in, force, and of the right of the-defendant to acquire title to the boat by payment of the residue of the purchase money vn future.” This case was followed in O'Rourke v. Hadcock (supra). Even in the dissenting opinion in the latter case Bradley, J., conceded, .-upon the authority of Hutchings v. Munger, that the receipt of part payment operated as a waiver of the forfeiture so far as to permit the defendant to complete his. payments, and perfect title to the boat. The rule is broadly.stated in Jones on Chattel Mortgages (§ 692), that “ acceptance of part payment of the mortgage debt after the expiration of the time allowed by statute for redemption is a waiver of the forfeiture,” citing in .support of the rule Winchester v. Ball (54 Maine, 558); Flanders v. Borstow (18 id. 357), and Thompson v. Moore (36 id. 47).

Our conclusion is that, while, the acceptance by the mortgagee of an unpaid installment does not of itself effect the vesting of an abso,Itite legal title in the mortgagor, it does effect a waiver of the forfeiture and is a recognition of the mortgage, with all its terms and conditions, as still in force. The forfeiture is obliterated, and the original status restored. The legal, but defeasible title is continued -in the mortgagee, and the right to quief and peaceable possession is ■continued in the mortgagor. And the latter 'right can only be enforced in equity.

The plaintiff, however, does not rely wholly upon the legal effect of the defendants’ acceptance of payment of the only note as to which there was a claim of default. When that note was paid, the defendant distinctly recognized the plaintiff’s equity. The cgurt below "would have been quite justified in specially finding (had the decision been made in the old way) that Mr. Robertson then acceded to Mr. Earle’s position, which was that he supposed, of course, he could take possession of the silverware; that Mr. Rohinson said that it was all right, and that as he, Earle, had paid the note, there was no objection to his taking the silver away. This was further recognized when the defendants accepted payment of the second note. It appeared too that every note which had matured prior to-the trial had been promptly paid. These amounted in all to more than one-third of the entire purchase price.

A more complete waiver both at law and in fact it would be difficult to conceive of.

In the view which we have last taken of this case, there can be no doubt of the plaintiffs right to appeal to a court of equity. She had in fact no other right. But even in our original view that there never was a forfeiture, there was still an undoubted right to equitable relief. What the plaintiff seeks is not a specific performance of a contract for the sale of chattels, but a specific performance of the covenant for peaceable possession and quiet enjoyment. Here the contract of sale was executed, and the goods were delivered. The mortgage was given to secure to the mortgagee the purchase-price of the goods, and the covenant was given to secure to the mortgagor continuous possession until default. Damages for the breach of such a covenant would be a most incomplete and unsatisfactory remedy. The measure of damages would be the value of the right of possession until forfeiture by breach of the cpndition of the mortgage, and the value of the property after payment of the mortgage debt. (Jones on Chattel Mortgages, § 437, and cases cited.) It would be practically impossible for the plaintiff here to prove the value of the right of possession. That would involve the value of the use of the property for hotel purposes. The deprivation of that special use goes to the very root of the transaction. The property was purchased and designed with reference to that special use in a new and important hotel establishment. The particular hotel for which it was purchased has been lost to the vendor by other causes, but the use in other hotel directions is equally essential. The silverware was especially adapted to hotel purposes. It was marked in two or three different ways. Part of it was marked “Hotel Hew Hetherland,” part with an initial C