Hamlin v. Klein

The learned trial court found, as facts in this case, that the release of the plaintiffs as to the five lots in question was induced by the false and fraudulent representations of the mortgagor’s treasurer, and that none of said lots was, by the terms of said mortgage, entitled to be released from the lien thereof; and his conclusion of law was, that the plaintiffs should be restored to the same rights in all respects as against the defendants Klein and Vorreuter, and as to all collateral security held by them, as they would have possessed had the release in question never been executed, so far as the same pur*417ported to discharge from the lien of the mortgage the five lots which were fraudulently embraced in such release.

The facts thus found appear to be fully sustained by the evidence in the case and are apparently acquiesced in by the principal debtor, as no appeal has been brought from the judgment herein, save by the defendants Klein and Vorrenter, who stand in the relation of sureties to the mortgage debt. And the only question, therefore, which is necessary to be considered upon this appeal, is whether or not the release from the lien of the plaintiffs’ mortgage of these five lots, which unquestionably did materially impair the security of such mortgage, exonerated the sureties from any liability for the amount remaining unpaid upon the principal debt.

It is, of course, well settled that where a creditor by a valid agreement entered into between himself and the principal debtor, without the consent of his surety, releases the former from the payment of his obligation, or any part thereof, or releases any property of the principal debtor which the creditor holds as security for the payment of the debt, the surety is thereby discharged. It is likewise an elementary principle of law that fraud vitiates all contracts; and it follows that where a party is induced to enter into an agreement by reason of fraudulent representations made to him, the same is absolutely void, and the surety is not discharged from his obligation to answer for his principal by reason of the agreement thus entered into. (Lowman v. Yates, 37 N. Y. 601.)

The rule just stated may be applied with peculiar appropriateness to the case in hand, for the acts of the creditor which will ordinarily exonerate a surety, must be of such a character as to work some legal injury to him, or they must be inconsistent with his legal rights. (Blydenburgh v. Bingham, 38 N. Y. 371; Clark v. Sickler, 64 id. 231.)

Of course, to the extent that the release of the five lots impaired the security of the principal debtor which was held by these plaintiffs, the sureties were injuriously affected; but when the relief sought to be obtained through the medium of this action is accomplished and the lien of the mortgage is restored to those lots, the sureties will be placed precisely where they would have been had those lots not been included in the release. In other words, nothing has been *418done by these plaintiffs, except that which they are now seeking to avoid upon the ground of fraud, which injuriously affects the legal rights of the appellants. It is quite possible that the land covered by the mortgage has depreciated in value, as the defendants attempted to show upon the trial; but it is difficult to see how that fact can be made available as a defense to this action, inasmuch as the plaintiffs’ mortgage is not yet due and there has been no default in the interest thereon which would have permitted them to foreclose the same. So that, with the lien restored to these five lots, the sureties will simply remain liable to respond for any deficit which may possibly arise if the plaintiffs should ultimately be forced to foreclose their mortgage, and that is precisely what they undertook to do when they assumed the obligation of sureties to the principal debtor.

We are unable to discover any error committed upon the trial of this case, or in the conclusion reached by the learned trial court; and we, therefore, think that the judgment appealed from should be affirmed.

All concurred, except Ward, J., not sitting.

Judgment affirmed, with costs.