CASES DETERMINED IN THE APPELLATE DIVISION OF THE SUPREME COURT OF THE STATE OF NEW YORK HERMAN MEHLHOP, Respondent, v. CENTRAL UNION TRUST COMPANY OF NEW YORK, Appellant. 1 First Department, February 10, 1922. Mortgages extension — alleged agreement for extension of time of payment of mortgage invalid - res judicata — judgment in foreclosure action involving identical issue res judicata in action to recover consideration for extension agreement. The owner of property who had taken it subject to a mortgage, which he did not assume or agree to pay, agreed orally with the mortgagee after the mortgage was due for an extension of the time of payment, and a written agreement was prepared in duplicate and sent to the owner for execution; but the property was meanwhile conveyed and the grantee executed the prepared extension agreement without the knowledge or consent of the mortgagee and sent both copies to him with $3,000 which was furnished by the grantor, the original owner, that amount being the sum provided in the agreement to be paid on the principal in consideration for the extension. The mortgagee insisted that the extension agreement be executed by the grantor, and he failing so to do, the mortgagee never delivered either of the duplicate copies of the agreement to any one, but credited the $3,000 as a payment on the principal and brought an action to foreclose the mortgage in which the question whether there was an extension agreement was squarely raised and decided in the negative. The $3,000 cannot be recovered by said grantee in an action brought later for that purpose, since under the circumstances there was no extension agreement as a matter of law, and further the judgment in the foreclosure action is res judicata on the question. SMITH, J., dissents, with opinion. APPEAL by the defendant, Central Union Trust Company of New York, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Bronx on the 26th day of March, 1921, upon the verdict of a jury rendered by direction of the court, and also from an order entered in said clerk's office on the 22d day of March, 1921, setting aside a verdict First Department, February, 1922. [Vol. 200 in favor of the defendant and directing a verdict in favor of the plaintiff. Larkin, Rathbone & Perry [Orville C. Sanborn of counsel; Donald C. Muhleman and Francis C. Nickerson with him on the brief], for the appellant. Eugene Cohn of counsel, for the respondent. MERRELL, J.: This appeal is by the defendant, Central Union Trust Company of New York, from a judgment rendered in plaintiff's favor for $3,656.50 upon a verdict directed by the court at Trial Term in favor of the plaintiff and against said defendant. At the close of the evidence both sides moved for the direction of a verdict, and the court first granted defendant's motion. Upon plaintiff's motion to set aside the verdict thus directed, it was stipulated that, if the court finally decided that it had erred in directing a verdict in defendant's avor, a verdict might be directed in favor of plaintiff with an exception to the defendant. Briefs were submitted to the court, and the court finally changed its original determination and directed a verdict in favor of the plaintiff. From the judgment entered thereon this appeal is taken. The facts out of which this action grew are as follows: Prior to 1915 one Pauline Haebler, the wife of Theodore Haebler, held a second mortgage upon certain real property at 34 Mt. Morris Park, West, in the borough of The Bronx. The defendant, Central Union Trust Company of New York, held a first mortgage upon said real property upon which there became due January 8, 1915, $30,000 of principal. The holder of the second mortgage brought action to foreclose the same, resulting in Haebler's acquiring title to the said real property, subject to the mortgage thereon for $30,000 held by the defendant, Central Union Trust Company of New York. A bond accompanied said mortgage held by the defendant, upon which the only party liable was the Mountain Construction Company. Haebler, in acquiring title to said real property, did not assume or agree to pay the mortgage of the defendant. In December, 1915, the defendant's mortgage then being past-due, Haebler, upon payment thereof being demanded, applied to the defendant for an extension of its mortgage; and, as testified to by one Wolfe, who was at the time in charge of the real estate department of the defendant, Haebler then agreed, in consideration of a three-year extension of defendant's mortgage, to pay $3,000 on the principal thereof. This arrangement, Wolfe testifies, was satisfactory to the defendant, and Haebler was directed to take the matter up with defendant's counsel for the App. Div. 1] First Department, February, 1922. preparation of the necessary papers. Thereupon Haebler proceeded to the office of William D. Tucker, counsel for the defendant, who first made a memorandum with reference to a three-year extension agreement to be entered into between the defendant and Haebler upon the latter's payment of the said $3,000 on January 8, 1916, together with attorney's and notary's fees and stamps for effecting such extension. And thereupon defendant's attorney, Tucker, prepared a proposed extension agreement in duplicate, as of the date of January 6, 1916, between the Central Union Trust Company of New York, the defendant herein, of the first part, and said Haebler, as party of the second part; and on December 28, 1915, mailed the same to Haebler with a letter requesting execution of the duplicate copies of the agreement and the return thereof with his checks for $3,000 on account of the principal of defendant's said mortgage, together with $750 for interest due January 8, 1916, and for the sum of $29.50 in payment of attorney's fees for services, as per bill inclosed. On January 4, 1916, Haebler conveyed the property by deed to the plaintiff, Herman Mehlhop. On January 7, 1916, Mr. Eugene Cohn, who, at the time, was acting as attorney for both Haebler and the plaintiff herein, delivered to defendant's said attorney, Tucker, checks for the said payment of $3,000 upon principal of said bond and mortgage, $750, interest to January 8, 1916, and $29.50, attorney's fees, together with the duplicate extensions in which he had substituted the name of the respondent, Mehlhop, in place of Haebler, and which duplicates had been executed by respondent as party of the second part. At the time of leaving these duplicate extensions and checks with defendant's legal representative, Cohn did not divulge that he represented the plaintiff, nor that plaintiff, Mehlhop, had acquired title to the real property and had executed the duplicate extension agreement instead of Haebler executing the same. Plaintiff at that time was unknown to the trust company. It appears that at the time the plaintiff, Mehlhop, was foreman of the garage and delivery system of the Ebling Brewing Company, of which Haebler was an officer, and it further appears that the moneys alleged to have been paid by Cohn in plaintiff's behalf to obtain an extension of said mortgage were furnished by Haebler. The duplicate agreement and checks were left with defendant's legal representative, and the $3,000 check, representing a payment upon the principal of said overdue bond and mortgage, was cashed by the defendant in the regular course and applied to the principal of said mortgage. Some time after the delivery of said checks and of said proposed extension agreements to defendant's counsel, it was discovered that the name of Theodore Haebler had been erased from the proposed First Department, February, 1922. [Vol. 200 extension agreement and that of the plaintiff herein substituted in place thereof, and that said duplicates were not executed by Haebler in accordance with the agreement and understanding between Haebler and the defendant and in accordance with the memorandum made at the time of said preliminary agreement. Thereupon defendant's attorney, Tucker, in behalf of his client and in the name of the legal firm of which he was a member, addressed to Cohn, representing Haebler, the following letter: "January 7, 1916. "EUGENE COHN, Esq., "74 Broadway, "New York City: "DEAR SIR. The Central Trust Company has turned over to us the extension agreements which you sent it to-day on behalf of Mr. Haebler. It was the understanding at the time the terms of the extension of this mortgage were agreed upon that Mr. Haebler should execute the extension agreement personally. We note that the same is executed by Herman Mehlhop. On behalf of the Trust Company we hereby request that the agreement be properly corrected, and that the same be executed by Mr. Haebler according to his understanding with the Trust Company. "Kindly give this matter your immediate attention. "Yours very truly, "WDT/WMW " JOLINE, LARKIN & RATHBONE. . Neither Cohn nor the parties whom he represented replied to this letter, or complied with the request therein contained, and Haebler never executed the extension agreement, nor did the defendant deliver to any one either duplicate of the agreement for the extension of said bond and mortgage. In December, 1917, the defendant brought action to foreclose its mortgage upon said real property. In the foreclosure action it credited said $3,000 paid upon the principal of said bond and mortgage, cla'ming, as the balance due upon principal, the sum of $27,000. In the foreclosure action there were named as defendants, the Mountain Construction Company, Herman Mehlhop, the plaintiff herein, Theodore Haebler, and Pauline Haebler, his wife. All of the defendants made default in pleading, save the defendant Mehlhop, who appeared in said action by said Cohn, as his attorney, and interposed an answer wherein he denied the payment of $3,000 upon the past-due bond and mortgage, and denied that at the time of the commencement of the action the sum of $27,000 or any part thereof was or became due or owing, or that it was or became due or owing at any time thereafter. For a separate defense to App. Div. 1] First Department, February, 1922. the complaint of the said plaintiff, the defendant Mehlhop set forth and alleged that he became seized of the mortgaged premises through conveyance thereof from the said Haebler and wife, and that on or about January 7, 1916, the said defendant caused to be delivered to the said plaintiff a certain instrument under his hand and seal, whereby, for sundry considerations therein expressed, the said defendant assumed the payment of the principal sum secured by the said mortgage and agreed to pay the same, $3,000 of said principal at the time of the delivery of said writing and the balance of $27,000 on the 8th day of January, 1919, and which said instrument purported to express an agreement by the said plaintiff, for good and valuable considerations, to extend the time of the payment of said mortgage in the manner as thereinbefore recited. The defendant in the foreclosure action (this plaintiff) further alleged in his said answer that together with the said paper writing there was delivered to the said plaintiff as a part of the said agreement, and not otherwise, the sum of $3,000, which sum the plaintiff had retained, and that plaintiff had since been in possession of said writing obligating said defendant as aforesaid, and had retained and appropriated and still retained said $3,000 paid in pursuance thereof. The plaintiff herein specifically set forth and alleged in his answer in said foreclosure action: "That by such retention of the said paper and of the said money the said plaintiff extended the time for the payment of the said mortgage and for the sum of Twenty-seven thousand ($27,000) dollars, still unpaid, to the 8th day of January, 1919, and that no part of the said balance of Twenty-seven thousand ($27,000) dollars is now due or payable." Unquestionably, by his said answer in said foreclosure action, this plaintiff squarely tendered the issue as to whether said $3,000 was a payment upon past-due principal, as claimed by the plaintiff in that action, or whether it was a payment, as claimed by the defendant therein, as a consideration for the extension of said bond and mortgage, and that by his answer in the foreclosure suit the plaintiff herein tendered the issue as to the amount due upon said bond and mortgage there sought to be foreclosed, and, indeed, tendered the issue whether, under the facts as alleged, there was in law, by the retention by the mortgagee of said paper and of said money, an extension of time of payment of the principal of said bond and mortgage; and tendered the issue as to whether or not, at the time of the commencement of said foreclosure action, there was any sum due upon said bond and mortgage. The issues thus tendered were tried by the court at Equity Term. such trial the court made its decision, whereby it "VIII. Thereafter the sum of Three thousand dollars ($3,000) As the result of found as follows: |