McDonald v. Finseth

155 N.W. 863, 32 N.D. 400, 1915 N.D. LEXIS 79

• Court: North Dakota Supreme Court
• Decided: December 14, 1915
• Status: Published

Opinions

Bruce, J.,

(after stating the facts as above). There is a decided conflict in the authorities upon the question which is before us, and some courts hold to the rule that the grantee of mortgaged premises who purchases subject to a mortgage which he assumes and agrees to pay will not be liable for a deficiency arising on a foreclosure and sale, unless his grantor is also liable, legally and equitably, for the payment of the mortgage, and that if there is a break anywhere in the chain of liability, all of the subsequent purchasers are without obligation in so far ás the mortgagee is concerned, and that the promise of the last grantee only operates as an indemnity to his immediate grantor. See dissenting opinion in McKay v. Ward, 20 Utah, 149, 46 L.R.A. 623, 57 Pac. 1024; Fry v. Ausman, 29 S. D. 30, 30 L.R.A. (N.S.) 150, 135 N. W. 710, Ann. Cas. 1914C, 842; Brown v. Stillman, 43 Minn. 126, 45 N. W. 2; Nelson v. Rogers, 47 Minn. 103, 49 N. W. 526; Vrooman v. Turner, 69 N. Y. 284, 25 Am. Rep. 195; King v. Whitely, 10 Paige, 465; Morris v. Mix, 4 Kan. App. 654, 46 Pac. 58; New England Trust Co. v. Nash, 5 Kan. App. 739, 46 Pac. 987; Skinner v. Mitchell, 5 Kan. App. 366, 48 Pac. 450; Ward v. De Oca, 120 Cal. 102, 52 Pac. 130; Biddel v. Brizzolara, 64 Cal. 354, 30 Pac. 609; Y. M. C. A. v. Croft, 34 Or. 106, 75 Am. St. Rep. 568, 55 Pac. 439; Eakin v. Shultz, 61 N. J. Eq. 156, 47 Atl. 274; Norwood v. De Hart, 30 N. J. Eq. 412; Wise v. Fuller, 29 N. J. Eq. 257; Crone v. Stinde, 156 Mo. 262, 55 S. W. 863, 56 S. W. 907; Goodenough v. Labrie, 206 Mass. 599, 138 Am. St. Rep. 411, 92 N. E. 807; Hicks v. Hamilton, 144 Mo. 495, 66 Am. St. Rep. 431, 46 S. W. 432; Willard v. Wood, 135 U. S. 309, 34 L. ed. 210, 10 Sup. Ct. Rep. 831; Wiltsie, Mortg. Foreclosure, § 227; 9 Enc. Pl. & Pr. 469.

If we adopt this rule, it is perfectly clear that the trial court erred in rendering judgment for the plaintiff and respondent, and that such judgment should be reversed, for, although it is perfectly clear from the record that in the deed from the Langleys to Finseth, Einseth assumed and agreed to pay the mortgage, and that in the deed from Engel to the Langleys, the Langleys also agreed to pay the mortgage, it is not clear that in the deed from the Woodburys to Engel, made any such agreement or assumption; that the chain was therefore broken, and according to the authorities cited there would be no privity of contract between the mortgagee, McDonald, and the defendant M. B. Finseth. We believe, however, that the cases mentioned are unsound in principle, and prefer to follow the other line of authorities, which appear to us to express the better rule. The cases cited by counsel for appellant, indeed, seem to totally ignore, in their conclusions at any rate, even if not in their reasoning, the well-established rule of law that when one makes a promise to another for the benefit of a third person, such third person can maintain an action upon the promise, even though the consideration does not run directly from him, and even though at the time he knew nothing of the promise to pay him. Hare v. Murphy, 45 Neb. 809, 29 L.R.A. 851, 64 N. W. 211; McKay v. Ward, 20 Utah, , 46 L.R.A. 623, 51 Pac. 1024; Rev. Codes 1895, § 3840; Crone v. Stinde, 156 Mo. 262, 55 S. W. 863, 56 S. W. 907, overruling Hicks v. Hamilton, 144 Mo. 495, 66 Am. St. Rep. 431, 46 S. W. 432.

This is certainly the rule which has been announced by this court in construing § 3840, Eev. Codes 1895, which provides that “a contract made expressly for the benefit of a third person may be enforced by him at any time before the- parties thereto rescind it.” In the case of McArthur v. Dryden, 6 N. D. 438, 71 N. W. 125, we said: “Section 3840, above quoted, contemplates a contract resting upon a present consideration passing between the two contracting parties, and with which the third party has no connection. One of the most common instances of such a contract -arises when a mortgagor of real property sells the same, and the grantee, as a part of the consideration, promises and agrees with the mortgagor.that he will pay the mortgage debt. Here the conveyance of the property furnishes the consideration for the grantee’s promise, and the mortgagee may maintain an action against him. He becomes the principal debtor, and, while the mortgagor is not released, yet, as to the grantee, he stands in the position of a surety. Moore v. Booker, 4 N. D. 543, 62 N. W. 607.”

And we are not unaware of the holding in Parlin v. Hall, 2 N. D. 473, 52 N. W. 405, and come to our conclusion in spite of that decision. In our minds, indeed, that case is in no way parallel with the one at bar, as in it the defendant did not agree to pay any debt, or to pay anyone, or to be directly responsible to any third party, but merely “to pay to said first party all the sums which he pays on said guaranty, or advances in pursuance of this agreement.” This is clearly not a promise to pay any third party. In the case at bar the defendant Finseth expressly agreed in his deed from the Langleys to pay a mortgage of $2,000, and we must assume that this amount was deducted from the purchase price of the land. 3 Pom. Eq. Jur. 3d ed. § 1205; Maher v. Lanfrom, 86 Ill. 513; Freeman v. Auld, 44 N. Y. 50; Hardin v. Hyde, 40 Barb. 435; Fuller v. Hunt, 48 Iowa, 163; Green v. Turner, 38 Iowa, 112; Greither v. Alexander, 15 Iowa, 470; Gage v. Cameron, 212 Ill. 146, 72 N. E. 204; Jehle v. Brooks, 112 Mich. 131, 70 N. W. 440; Strong v. Converse, 8 Allen, 557, 85 Am. Dec. 732; Drury v. Tremont Improv. Co. 13 Allen, 168; Weed Sewing Mach. Co. v. Emerson, 115 Mass. 554; Schley v. Fryer, 100 N. Y. 71, 2 N. E. 280; Corning v. Burton, 102 Mich. 86, 62 N. W. 1040. The case, indeed, is no different from one in which A, who is anxious to sell his land, and also to give his son a present, agrees to sell it to B for $4,000 on the consideration that $3,000 shall be paid to him in cash, and the $1,000 balance of the purchase price shall be paid to his son. The last assumption, indeed, is an original promise on the part of the grantee, Finseth, to pay the plaintiff, McDonald, a certain sum of money, and, under what we believe to be the better line of authorities, can be and is properly supported by the consideration afforded by the transfer of land to him, and by the fact that the amount of the mortgage was deducted from the purchase price, and this, even though there was no direct dealing between him and the plaintiff mortgagee. Crone v. Stinde, 156 Mo. 262, 55 S. W. 863, 56 S. W. 907 (overruling Hicks v. Hamilton, 144 Mo. 495, 66 Am. St. Rep. 431, 46 S. W. 432, and Harberg v. Arnold, 78 Mo. App. 237, and Heim v. Vogel, 69 Mo. 529); Birke v. Abbott, 103 Ind. 1, 53 Am. Rep. 474, 1 N. E. 485; Hare v. Murphy, 45 Neb. 809, 29 L.R.A. 851, 64 N. W. 211; Little v. Thoman, 4 Ohio Dec. Reprint, 513; McKay v. Ward, 20 Utah, 149, 46 L.R.A. 623, 57 Pac. 1024; Cobb v. Fishel, 15 Colo. App. 384, 62 Pac. 625; Marble Sav. Bank v. Mesarvey, 101 Iowa, 285, 70 N. W. 198; Merriman v. Moore, 90 Pa. 78; Brewer v. Dyer, 7 Cush. 337; Enos v. Sanger, 96 Wis. 150, 37 L.R.A. 862, 65 Am. St. Rep. 38, 70 N. W. 1069; Dean v. Walker, 107 Ill. 540, 47 Am. Rep. 467; Bay v. Williams, 112 Ill. 91, 54 Am. Rep. 209, 1 N. E. 340.

So, too, it is immaterial whether the original mortgagor in fact received from the plaintiff the full sum of $2,000 or not, or whether, as claimed by the defendant, $600 of the $2,000 has never been paid to the original mortgagor. The evidence shows that this $600 was not paid, but was kept back for a short time, with the consent of both parties, on account of the immediate lack of funds of the mortgagee, and that in the interim the original mortgagors, the Woodburys, deeded the property to Ernest Engel, such deed containing the provision that the premises were “free from all encumbrances except a mortgage of $2,000 to Walter A. McDonald.” It is true that under the holding of this court in the cases of Smith v. Gaub, 19 N. D. 337, 123 N. W. 827, and Sommers v. Wagner, 21 N. D. 531, 131 N. W. 797, Ernest Engel, the grantee of the Woodburys, was not himself bound to pay the mortgage debt, and that “an express exception contained only in tbe covenant against encumbrances in a deed to real property of a mortgage upon tbe land, in tbe absence of qualifying words making tbe granting of the deed subject to such encumbrance, and making the restriction upon the covenant against encumbrances apply also to the covenant of warranty, and generally to all the covenants in the deed, does not except such mortgage from the covenant of warranty.” The deed from the Woodburys to Engel, indeed, contained the provision that the “parties of the first part (the-Woodburys) for themselves, their heirs, executors and administrators, do covenant with the party of the second part, his heirs and assigns, that they are well seised of the land and premises aforesaid, and have good right to sell and convey the same in the manner and form aforesaid; that the same are free from all encumbrances except a mortgage of $2,000 to Walter A. McDonald; and the above bargained and granted land and premises in the quiet and peaceable possession of said party of the second part, his heirs and assigns, against all persons lawfully claiming or to claim the whole or any part thereof, the said parties of the first part will warrant and defend.” It is also true that though it might have been shown by parol evidence that the amount of the $2,000 mortgage was deducted from the purchase price, there is no such proof in the record.

The fact remains, however, that the last grantee, the defendant Einseth, specifically agreed to pay the $2,000 mortgage, and the question before us is merely whether the plaintiff, McDonald, can, in a court of equity, take advantage of the promise and assert his claim. It is perfectly clear that he could have asserted it against the original mortgagors, the Woodburys; for the testimony shows that McDonald had agreed with these parties to collect the full amount of the mortgage note, and had given back to them an obligation by which he had agreed to pay them this amount of money when so collected. His testimony is as follows: “I do not believe I ever met the defendant Finseth, — may have seen him. The full amount, $2,000, was not paid by me, only $1,400, plus interest and an acknowledgment for $600. Instead of giving these people $600 in cash, to save making up a new set of papers, I gave them an acknowledgment that when the note would be paid I would give them $600, and that acknowledgment has never been taken up. I was not to pay it until this note of $2,000 was paid. That was the understanding on this $600, which they have never received as a part of the $2,000, and has been drawing interest. If the note is not paid by the makers, I would say that the only consideration that secures this mortgage is $1,400. I gave them $1,400. I never gave them any other money. I have not paid anything ón the $600 acknowledgment. I was not planning on paying it until the note here in question, of $2,000, was paid. All that I am out at the present time is $1,400 and interest and some costs. I have collected the interest on the $2,000 note up to January 31, 1913, I think. My agreement to pay the $600 has never been surrendered, and is still an outstanding obligation against me. I have collected $600 interest up to January 31, 1913 — 10 per cent.”

Even though the deed from the Woodhurys to Engel would preclude the idea that Engel agreed to assume and pay the mortgage debt, still the fact remains that the sum would be a lien upon the premises, ■and the title of the grantee would be subject thereto, and the presumption would be, even without proof, that that amount of money was deducted from the purchase price. Although, indeed, to quote the language in the opinion of Smith v. Gaub, supra, and in relation to the modification of the covenant of warranty by the statement that the premises were free from all encumbrances except the mortgage specified, “if plaintiff had wished or intended to except the mortgage from the covenant of warranty, he could easily have done so by making the restriction upon the covenant against encumbrances apply to all the covenants of the deed. In view of the ease with which it may be accomplished, it is inconceivable that a careful conveyancer in a document so formal and important as a deed should fail to malte the exception in some such manner.” This court must, nevertheless, take judicial notice of the well-established customs of business and trade, and it will not be presumed, in the absence of proof, that any person would take a deed to land which was subject to a mortgage without deducting such amount from the purchase price, nor that he would rely entirely on the covenants ■of warranty of his grantor to protect his purchase. The fact, indeed, that the interest on the full $2,000 was paid up to the 31st day of January, 1913, and partly by the defendant himself, adds emphasis to this presumption. Whether or not the plaintiff had paid to his original mortgagor the full amount of the mortgage note, indeed, is a matter which lies between such original mortgagor and the plaintiff. So far as the defendant in this action is concerned, and his immediate grantor, none of such parties can be held to have paid their debts or complied with the provisions of their agreements of purchase until they have paid the $2,000; and since in their deeds they expressly agreed to assume and pay the mortgage, under all of the authorities the presumption would be that the full amount was deducted from the purchase price, and that the same was retained by them for the very purpose of paying the same.

They had, in short, agreed to pay this debt to the grantors in a certain manner, and this included the paying of $2,000 and interest to the owner of the mortgage; and we can see no reason why these contracts were not valid and could not be enforced.

Nor is there any merit in the contention that the deed was not delivered to the defendant Finseth, but to his cotenant, H. A. Hallum, and that said cotenant had no authority to obligate the defendant Finseth to pay such mortgage, or to accept a deed containing such clause. This point was mentioned in the oral argument, but is not suggested in the brief. If it had been, the answer to it is that the defendant Finseth himself testified that he knew the property had been deeded to himself, and his cotenant; that'he knew there was a mortgage on the property, and paid interest on it; that his cotenant told him that he had received the deed; that he knew that he had placed it of record; that he told him he had; that the property now stands in his name-; that he paid half of the interest for two years on the full $2,000, and that Mr. Hallum paid the other half, and that he understood it was to be sent up to Mr. McDonald. The deed was recorded on the Ith day of August, 1911. This action was not begun until June, 1914. It would hardly seem that the grantee of a recorded deed can sit quietly for three years, remain in possession of the premises, and pay the interest on a mortgage which is assumed thereon, and then claim that he did not know of or consent to the terms of the instrument.

The judgment of the District Court is affirmed.