Roth v. Michelson, 55 N.Y.2d 278 (1982)
A part payment on a debt, after the statute of limitations has run, revives the debt only against the payor and subsequent purchasers who acquired the property without giving value or with actual notice of the payment.
Summary
This case concerns the effect of a part payment on a mortgage debt after the statute of limitations has expired. The Roths sought to foreclose on a mortgage. The court held that a payment made by one mortgagor after the statute of limitations had run did not revive the mortgage against subsequent purchasers (the Russos) who bought the property for value and without actual knowledge of the payment. The Court emphasized the need for actual notice to bind subsequent purchasers, protecting their reliance on the apparent expiration of the limitations period. The decision underscores the importance of clear notice and the limits of imputed knowledge in reviving time-barred debts affecting real property interests.
Facts
In 1960, the Roths loaned money to the Michelsons, secured by a second mortgage on their home.
Only two payments were ever made: $400 in 1961 and $200 in 1973, made solely by Herbert Michelson. The Michelsons divorced and Herbert filed for bankruptcy in 1975, listing the mortgage as a secured debt.
The Russos (Lillian Michelson’s parents) purchased the property at the bankruptcy sale in 1975 for $500, subject to existing liens. There was no evidence that the Russos had actual knowledge of the 1973 payment made by Herbert.
Procedural History
The Roths brought a foreclosure action. The trial court held that foreclosure was unavailable against Lillian’s interest because she was unaware of Herbert’s 1973 payment. However, the trial court found that Herbert’s payment kept the mortgage alive against his interest, which was conveyed to the Russos. The Appellate Division affirmed. The Russos appealed to the New York Court of Appeals.
Issue(s)
Whether a part payment on a mortgage debt by one mortgagor after the statute of limitations has run revives the right to foreclose the mortgage against subsequent purchasers who acquired the property for value without actual notice of the payment.
Holding
No, because the subsequent purchasers (the Russos) gave value for the property and did not have actual notice of the prior payment that would have revived the statute of limitations.
Court’s Reasoning
The court relied on General Obligations Law § 17-107(2)(a)(2), which states that a payment revives a debt and the right to foreclose against the person who made the payment and a person who subsequently acquires interest in the property without giving value or with actual notice of the payment.
The Russos gave value ($500) for the property at the bankruptcy sale. The court did not consider this a nominal sum that would negate the “giving value” condition. More importantly, the Russos lacked actual knowledge of the 1973 payment made by Herbert Michelson. The court stated that the fact Lillian Michelson occupied the house, or that she is the daughter of the Russos or that these factors may have motivated the Russos to make the purchase does not qualify these requirements.
The Roths argued that the Russos, by purchasing at a bankruptcy sale, were chargeable with knowledge of the contents of the bankruptcy schedule, which listed the mortgage. The court rejected this argument, stating that listing the mortgage did not equate to actual notice of the 1973 payment. “The scheduling of the 1960 mortgage balance, however, did not take the place of the “actual notice of the making of the [1973] payment’ called for by the plain wording of the statute”. The court emphasized the importance of the plain language of the statute. A bankrupt may include all items, regardless of merit, when attempting to have debts discharged.