Frank v. Davis. FRANK, APPELLANT, v. DAVIS, RESPONDENT. COURT OF APPEALS; OCTOBER, 1892. § 1626 et seq. Action to foreclose mortgage-when judgment for deficiency may be granted therein after sale of mortgaged premises under prior mortgage. Where, pending an action for the foreclosure of a mortgage upon real property, the mortgaged premises were sold under a prior mortgage in an action to which the holder of the junior mortgage was a party, and a surplus remained which in appropriate proceedings was applied upon the junior mortgage, leaving unpaid upwards of $3000,-Held, that the deficiency arising upon the foreclosure of the junior mortgage was thereby ascertained, and that, although there could not be a sale under such junior mortgage, the lien thereof was transferred to the surplus moneys, and upon its being applied on such mortgage the deficiency was ascertained and a court of equity had power to give a personal judgment therefor. By the statute of this state permitting a judgment for deficiency. in an action for the foreclosure of a mortgage, the general rule of equity that where a court of equity obtains jurisdiction of an action, it will retain it and administer full relief, both legal and equitable, so far as it pertains to the same transaction or the same subject-matter, was made applicable to actions to foreclose mortgages on real property, and the rule that existed prior to the Revised Statute, that in an action to foreclose a mortgage the court had not jurisdiction to render a personal judgment against the mortgagor upon his bond or covenant, was entirely swept away. Frank v. Davis (21 N. Y. Civ. Pro. 374) reversed. (Decided October, 1892.) Frank v. Davis. Appeal by the defendant from a judgment of the general term of the supreme court, in the first department, reversing a judgment of the special term of that court, denying an application made by the plaintiff for a judgment of deficiency in an action for the foreclosure of a mortgage. This action was brought to foreclose a mortgage upon real property situate in the city of New York, and the complaint demanded judgment for the relief usually sought in such an action-to wit, the sale of the property mortgaged, the application of its proceeds to the amount due on the mortgage, and judgment against the defendant, the mortgagor, for any deficiency. Upon trial duly had at special term, the plaintiff recovered a judgment, which was affirmed at general term (6 N. Y. Supp. 144) and also by the court of appeals (127 N. Y. 673); pending this appeal a judgment was entered in an action to foreclose a prior mortgage upon the same property, directing the sale of such property, under which a sale was had, which resulted in the payment of the first mortgage, and in a surplus of about $4000; this surplus was applied, in surplus-money proceedings brought for that purpose, upon the mortgage in favor of the plaintiff herein, and after the application of such surplus there remains owing the plaintiff upon his mortgage upwards of $3000. The plaintiff moved at special term for an order directing the clerk to enter and docket judgment in his favor for the amount of such deficiency, and such order was duly granted; the defendant appealed therefrom to the general term of the supreme court, in the first department, and the order of the special term was there reversed (21 N. Y. Civ. Pro. 374), and this appeal taken from such order. Julius J. Frank, for plaintiff, appellant. Frank v. Davis. Benjamin N. Cardoza (Donohue, Newcombe & Cardoza, attorneys), for defendant, respondent. EARL, C.J.-The judge at special term granted plaintiff's motion upon the authority of the case of Siewert v. Hamel (33 Iun, 44). The general term disapproved of the decision in that case, and held that the jurisdiction of an equity court to enter a deficiency judgment in an action to foreclose a mortgage is strictly statutory, and that such a judgment can be entered only after a sale under the foreclosure judgment, and a deficiency thus resulting and ascertained. In England, and in this state prior to the Revised Statutes, the court of chancery, in an action to foreclose a mortgage, was not supposed to have jurisdiction to render a personal judgment against the mortgagor upon his bond or covenant to pay the mortgage debt, and such a judgment could only be obtained by an action at law (Noonan v. Lee, 2 Black. 499, 501; Orchard v. Hughes, 1 Wall. 73; Dunklay v. Van Buren, 3 John. Ch. 330; Jones v. Conde, 6 John. Ch. 77; Globe Ins. Co. v. Lansing, 5 Cow. 380; Sprague v. Jones, 9 Paige, 395; Equitable Life Ins. Soc. v. Stevens, 63 N. Y. 341, 344; Burroughs v. Fostevan, 75 N. Y. 567, 572). This was an exception to the general rule that where a court of equity obtains jurisdiction of an action it will retain it and administer full relief, both legal and equitable, so far as it pertains to the same transactions or the same subject-matter (Lynch v. The Elevated Railroad Co., 129 N. Y. 274; McGean v. The Same, recently decided in this court). The purpose of this rule was to relieve parties from the expense and vexation of two suits, one equitable and the other legal, where the whole controversy could be adjusted in the one suit. There was no reason, so far as we can perceive, for taking the case of a mortgage foreclosure out of this convenient and beneficial rule; and the law-makers of this state took Frank v. Davis. early occasion to change the law by providing that a personal judgment for a deficiency may be given in the foreclosure action against any party liable for the mortgage debt (2 R. S. 191, secs. 151, 154). They went further than the equitable rule, and authorized a personal judgment not only against the mortgagor, as to whom equitable relief could be had, but also against any other person who was obligated for the payment of the same debt. It was early held that a contingent decree for the payment of the deficiency could be made before the sale under the foreclosure judgment (McCarthy v. Graham, 8 Paige, 480). The position taken by the defendant (in which the court below sustained him) is extremely technical. It was provided in the Revised Statutes that a personal judgment against the mortgagor might be ordered "for the balance of the mortgage debt that may remain unsatisfied after a sale of the premises," and the Code is substantially the same (sec. 1627). His claim is that as there has been and could be no sale upon the judgment in this action, the deficiency could not be ascertained in the mode mentioned in the statute, and that, therefore, a deficiency judgment is unauthorized, and that the plaintiff must bring an action at law to obtain such a judgment. The purpose of the provisions contained in the Revised Statutes and re-enacted in the Code was to change the chancery rule, as it had before been understood, and to bring the practice in foreclosure actions within the general chancery rule above referred to, and even, as we have seen, to extend that rule. The deficiency was to be ascertained by a sale of the mortgage premises, and not by the estimates of witnesses or other less satisfactory evidence. We are asked to hold that enough of the old chancery rule is left to prevent a deficiency judgment unless the deficiency be ascertained by a sale in the ac Frank v. Davis. tion in which the judgment is asked. We think we are justified in holding that that rule has been entirely swept away, and that the general rule in equity practice above referred to, except as it is modified by the provisions of the Code, governs foreclosure as other equitable actions. Where there is a sale under the foreclosure judgment, and after the application of the proceeds there is a balance unpaid upon the mortgage, the deficiency is thus as ertained. But the full purpose of the statute has been accomplished if the deficiency be ascertained, as in this case, by a sale in an action to foreclose a prior mortgage to which the defendant was a party. The surplus arising from the sale under the prior mortgage is, as to this plaintiff, for the purpose of the lien of his mortgage to be treated as real estate (Moses v. Murgatroyd, 1 John. Ch. 119; Dunning v. The Ocean National Bank, 61 N. Y. 497). The surplus money took the place of the real estate, and the plaintiff's lien was transferred to that. He could not sell it under his judgment, but he had the right to have it applied upon his judgment, and such application took the place of and was in lieu of a sale of the real estate. The deficiency was thus ascertained, and we cannot hold that a court of equity could not, in such a case, give a personal judgment for the deficiency without going against the prevailing practice under the general rule above referred to, without unnecessarily shortening the arm of equity and sacrificing substance for mere form. The plaintiff properly obtained his quitable judgment, and as part of the relief to which he is entitled, to do complete justice between the parties, he should have the deficiency judgment which he asks.* * In Dudley v. Congregation of Third Order of St. Francis (ante, p. 380) the general term of the supreme court, in the first department, holds that where a mortgage is found in an action to foreclose it to be void, the plaintiff cannot have judgment, as in a common-law action, on the bond. |