Petito v. Piffath, 85 N.Y.2d 1 (1994)

A settlement agreement to pay a specific sum in exchange for discontinuing a foreclosure action and assigning the mortgage does not constitute a written acknowledgment of the underlying mortgage debt or a partial payment sufficient to revive a time-barred claim under New York General Obligations Law.

Summary

This case addresses whether a settlement stipulation in a foreclosure action can revive a time-barred mortgage debt under New York’s General Obligations Law. Piffath borrowed money from Roslyn Savings Bank, defaulted, and entered a settlement where he paid a sum to Roslyn in exchange for an assignment of the mortgage to his brother. Petito later acquired the mortgage. When Piffath sought a declaration that the mortgage was unenforceable due to the statute of limitations, Petito initiated a foreclosure action. The Court of Appeals held that the settlement agreement was not a sufficient acknowledgment or partial payment of the original debt to restart the statute of limitations, as the payment was made pursuant to the new settlement agreement, not an acknowledgment of the original mortgage debt.

Facts

Ralph Peter Piffath borrowed from Roslyn Savings Bank, executing a note and mortgage. He defaulted on the balloon payment due April 1, 1980. Roslyn initiated foreclosure proceedings. A settlement stipulation dated June 24, 1981, was reached where Piffath would pay $197,455.57 to Roslyn, and in return, Roslyn would assign the mortgage to Piffath’s brother. Piffath arranged for the mortgage assignment to prevent other creditors from levying against his property. The mortgage was later used as collateral for a loan. Petito eventually acquired the mortgage.

Procedural History

In 1986, Piffath commenced an RPAPL 1501(4) proceeding seeking a declaration that the mortgage was unenforceable due to the statute of limitations. Petito responded with a foreclosure action. The cases were consolidated. The Judicial Hearing Officer (JHO) initially found Piffath equitably estopped from asserting the statute of limitations. The Appellate Division modified, rejecting the equitable estoppel argument but finding the 1981 stipulation a promise to pay, thus restarting the statute of limitations. The Court of Appeals granted leave to appeal.

Issue(s)

Whether a stipulation settling a foreclosure action, where the mortgagor agrees to pay a sum in exchange for assignment of the mortgage to a third party, constitutes (1) a written acknowledgment of the underlying mortgage debt, (2) a promise to pay the mortgage debt, or (3) a part payment of the debt, sufficient to revive an otherwise time-barred claim under General Obligations Law §§ 17-101, 17-105(1), or 17-107(2)(b)?

Holding

No, because the settlement agreement and subsequent payment constituted a new obligation rather than an acknowledgment of the original mortgage debt, and therefore did not revive the time-barred claim.

Court’s Reasoning

The Court of Appeals reversed the Appellate Division, holding that the 1981 settlement stipulation did not revive the statute of limitations. The court reasoned that the agreement to pay $197,455.57 was a new obligation undertaken by Piffath in exchange for Roslyn’s promise to terminate the foreclosure action and assign the mortgage. It was not an explicit acknowledgment of the original mortgage debt. Quoting from Morris Demolition Co. v Board of Educ., 40 NY2d 516, the court emphasized that the writing must “recognize an existing debt”. Because the settlement agreement did not explicitly acknowledge the mortgage debt, it could not serve to restart the statute of limitations. The court also reasoned that the payment was made pursuant to the settlement agreement, not as a partial payment of the underlying mortgage debt. Citing Crow v Gleason, 141 NY 489, 493, the court stated, “[i]n order to make a money payment a part payment within the statute, the burden is upon the creditor to show that it was * * * accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due”. The court found that the settlement, intended to resolve all outstanding obligations, did not meet this standard. Therefore, by 1986, the mortgage debt was time-barred.