Wolfe v. Murphy

47 App. D.C. 296, 1918 U.S. App. LEXIS 2409

• Court: Court of Appeals for the D.C. Circuit
• Decided: February 4, 1918
• Docket: No. 3059
• Status: Published

Opinions

Mr. Chief Justice Smyth

delivered the opinion of the Court:

First. The declaration opens thus: “The plaintiff, (’liarles F. Murphy, guardian of Raymond F. Gheen, a minor,” and then alleges that the note was indorsed “to the plaintiff, who is now the owner and holder thereof.” In the affidavit of merit filed by the plaintiff, it is said: “That as such guardian, tills affiant is the owner and bolder of a certain promissory note,” and the payee of the note indorsed the same to the plaintiff, guardian as aforesaid, who is now the owner and holder thereof.” This is not denied. In his affidavit of defense, Wolfe denies that the said note was transferred “to the plaintiff, as guardian of Raymond If. Ghcen.” But .Murphy had not alleged that the note was transferred to him “as guardian,” but “indorsed to him, guardian as aforesaid.” The words, “guardian as aforesaid,” are merely descript io personae, and do not indicate the capacity in which he received and holds the' title conveyed by the transfer. Under the 73d rule of the lower court, which requires the defense to be stated specificalfy and “in precise and distinct terms,” this was not a denial of the allegations either of the declaration or of the affidavit of merit. Besides, Wolfe in his amended affidavit says that “the plaintiff herein became the holder of said note.” This admission and the allegations aforementioned, when correctly understood, are to the effect that Murphy was the owner and holder of the note for the use and benefit of his -ward, and bring the case wilhin the rule of National City Bank v. Bankers Trust Co. 37 App. D. C. 553, rather than that of Baltimore & P. R. Co. v. Taylor, 6 App. D. C. 259. See also Lum v. Robertson, 6 Wall. 277-279, 18 L. ed. 743, 749; Greene v. McAuley, 70 Kan. 601, 68 L.R.A. 308, 79 Pac. 133.

Second. Was the defendant released by the extension of the time of payment ?

(a) We first inquire into the effect of the agreement by Re Baslmmtt to assume and pay the note. Wolfe says it made De Lashniutt the principal debtor, and him his surety. This was undoubtedly the result as between Wolfe and De Lashnutt (Union Mut. L. Ins. Co. v. Hanford, 143 U. S. 189, 36 L. ed. 118, 12 Sup. Ct. Rep. 437), but how was it with respect to the mortgagee! In some jurisdictions it is held that the change is effected as to the mortgagee also, but even there, it never takes place until the mortgagee acquires knowledges of the arrangement between the grantor and grantee. The Supreme Court of the United States in the Hanford Case, referring to the rule in those jurisdictions, such as Now York, Illinois, and other states, says: “The grantee, as soon as the mortgagee knows of the arrangement, becomes directly and primarily liable to the mortgagee for the debt for which the mortgagor was already liable to the latter; and the relation of the grantee and the grantor, towards the mortgagee, as well as between themselves, is thenceforth that of principal and surety for the payment of the mortgage debt.” In the same case, it is said: “The rule applies whenever the creditor gives time to the principal, knowing of the relation of principal ’ and surety, although he did not know of that relation at the time of the original contract” (citing several cases). Knowledge, then, of the relation is essential. Unless it exists, the extension does not work a release of the surety. Indeed, appellant, in closing his argument upon this point, cites a note to Fanning v. Murphy, 4 L.R.A.(N.S.) 666, which says in effect that the weight of authority is in harmony with this doctrine. In the present case there is nothing to show that Laura Green, at the time she granted the extension, had any knowledge whatever of the arrangement betweexr Wolfe and De Laskmutt. Defendant in his second pica says she did, but makes no mention of it in the affidavit of defense, and it is by the statements of the latter wo must determine, under the rules of practice prevailing here, the sufficiency of his defense. Nor was Laura G'reen charged with knowledge of the arrangement by reason of the fact that it was embodied in the recorded deed from Wolfe to De Laskmutt, because, among other reasons, she was not bound to take notice of any document affecting the title to the land, which was filed subsequently to the time when the mortgagee acquired an interest in the property, Rannels v. Rowe, 14 C. C. A. 376, 145 Fed. 296; 24 Am. & Eng. Enc. Law, 146. The defendant then did not bring himsblf within the doctrine of the cases which seem most favorable to him.

(b) But though it were, otherwise with respect to the necessity of knowledge on the part of the mortgagee, it would be1 immaterial so far as this ease is concerned, because, under the Federal rule, which is binding on us, the mortgagor does not, by virtue of an arrangement with his grantee according to which the latter assumes the debt, cease to be a principal and become a surety on the note, as to the mortgagee. In the Jlanford Case, supra, the Supreme Court of the United States said: i;Bv the settled law of this court, the grantee is not directly liable to the mortgagee, at law or in equity;” and, added: “In that view of the law, there might be difficulties in the way of holding that a person who was under no direct liability to the mortgagee was his principal debtor, and that the only person who w?as directly liable to him was chargeable as a surety only, and consequently that the mortgagee, by giving time to the person not directly and primarily liable to him, would discharge the only person who was thus liable. [Citing] Shepherd v. May, 115 U. S. 505, 511, 29 L. ed. 456, 458, 6 Sup. Ct. Rep. 119; Keller v. Ashford, 133 U. S. 610, 624, 33 L. ed. 667, 673, 10 Sup. Ct. Rep. 494.” In the Shepherd Case, it was said: “And if Walker [the grantee] had expressly promised May [the mortgagee] to pay the debt, that would not, without the assent of May, have converted Shepherd from a principal debtor into a surety merely.” And in the Keller Case it was held that such an agreement [the one assuming the debt] does not, without the mortgagee’s consent, put the grantee and mortgagor in the relation of principal and surety towards the mortgagee, so that the latter, by giving time to the grantee, would discharge the mortgagor. See also Cucullu v. Hernandez, 103 U. S. 105-115, 26 L. ed. 322-326.

(c) Nevertheless, it is urged with much earnestness that by the extension Laura Green recognized the arrangement between Wolfe and !)e Lashmutt. and thereby created the former a surety. If this be true, the same act by which she transformed him from a principal into a surety released him from all liability as surety. We cannot assent to such a proposition, because it is unreasonable, and we are admonished by courts and text-writers not to adopt a construction of either conduct or documents which involves an absurdity. People v. New York C. R. Co. 24 N. Y. 485-488; Story, Const. §§ 400-405; Cooley, Const. Lim. 69—70.

Moreover, the extension was granted, not at'the time of the transfer from Wolfe to De Lashmutt, but nearly two years thereafter, or nine days before the note became due. As we have shown, Laura Green had no knowledge of the agreement between Wolfe and De Lashmutt at the time she granted the extension. She cannot be charged correctly with recognizing and acquiescing in an arrangement of which she knew nothing. Pence v. Langdon, 99 U. S. 578, 25 L. ed. 420, 13 Mor. Min. Rep. 32.

(d) The Supreme Court of the United States has held in several instances that an extension of payment under circumstances similar to those in the present case did not release the maker of the note. Cucullu. v. Hernandez, supra, is a case in point. Cucullu gave his notes to Villavaso,. secured by a mortgage on a plantation. Afterwards he sold the plantation to Walker, who assumed to pay the notes to Villavaso. The' latter, without the consent of Cucullu, agreed with Walker for an extension of the time for the payment of the notes. This, Cucullu asserted, released him, because, as he averred, he became Walker’s surety by virtue of the assumption agreement between him and the latter. The court rejected his contention and said: “It cannot, we think, be reasonably claimed that a debtor is converted into a surety by his creditor’s acceptance, of an additional promise from a third person to pay the debt due him by his debtor. There is no element of suretyship in such a contract, unless it be that the additional debtor might be regarded as surety for the original debtor. The relation between the creditor and the original debtor is not changed by such an arrangement.” In Shepherd v. May, supra, Shepherd gave May his note and secured it by a trust deed on real estate. Before the maturity of the note, Shepherd conveyed the lot to Walker. May, at the request of Walker, gave three extensions, two for a year each and one for nine months, on Walker’s agreement to pay interest at the rate specified in the note. There was no evidence that Shepherd consented to these extensions. Walker having failed to pay the interest on the last extension, suit was brought by May against Shepherd upon the note. Stating Shepherd’s defense, the court said: “The first contention "of the plaintiff in error is that, by reason of the transaction stated in the bill of exceptions, Walker became the principal debtor of May, and Shepherd became his surety; and as May, upon a valid contract with Walker, extended the time for the payment of the note without the consent of Shepherd, the hitter was thereby discharged.” Answering this, it held that “the only way in which Walker could become the principal debtor of May, and Shepherd the surety, was by the mutual agreement of all three. There is no proof of any such agreement. It follows that, as the relation of principal ami surety did not exist between Walker and Shepherd, the latter was not discharged from his liability to May by the contract of May with Walker to extend the time for the payment of the money due on Shepherd's note.” See also James v. Day, 37 Iowa, 164; Waters v. Hubbard, 44 Conn. 340: Robertson v. Stuhlmiller, 93 Iowa, 326, 61 N. W. 986; Denison University v. Manning, 65 Ohio St. 138, 61 N. E. 706; Iowa Loan & T. Co. v. Haller, 119 Iowa, 645, 93 N. W. 636. It would seem that, under these decisions of the Supreme Court of the United State's, the extension granted to Tie Lashmutt did not release Wolfe, even if Laura Green knew of the assumption of the debt by Do Lashmutt at the time she granted the extension.

Much stress is laid by the appellant on certain expressions found in Keller v. Ashford, 133 U. S. 610, 33 L. ed. 667, 10 Sup. Ct. Rep. 494, to the effect that a payee “who has in no way acted on the faith 'of, or otherwise made himself a party to, the agreement of the mortgagor’s grantee to pay the mortgage,” is not affected thereby. It is urged that the payee in the present case did act on the faith of the agreement between 'Wolfe and lie Lashmutt, or at least made herself a party to it. We have already shown that she did neither, because she liad no knowledge of the existence of the agreement. Therefore this language does not- fit her caso. Eut if we grant she did have knowledge, there is nothing in the words quoted which warrants the argument drawn from them by the appellant. In that case Thompson gave several notes secured by mortgage's on land, which he subsequently conveyed to Ashford, who assumed payment of the debt. One of the notes not having been ¡laid when it became due, Keller, who then held it, brought action directly against Ashford upon his agreement to pay. The court, in denying him relief, said: “The promise of Ash-ford was to Thompson, and not to the mortgagees, and there was no privity of contract between them and Ashford. The consideration of the promise moved from Thompson alone. The only object of the promise was to benefit him, and not to benefit the mortgagees or other encumbrancers; and they did not know of or assent to the promise at the time it was made, nor afterwards do or omit any act on the faith of it. It is clear, therefore, that Thompson only could maintain an action at law upon that promise.” The court, when it spoke of the mortgagees not acting on the faith of the agreement, was meeting the argument that they had some rights by virtue of that agreement, to which Heller had succeeded. The court said they had none, since they did not act upon it or make themselves a party thereto. See also Shepherd v. May, 115 U. S. 505-511, 29 L. ed. 456—458, 6 Sup. Ct. Rep. 119. If, therefore, the extension of the time by the creditor upon an agreement with the grantee, Ashford, did not make the former a party to the agreement of assumption, or constitute such a reliance by him upon it as to make the grantee principal on the note so that the creditor could sue him at law, a like agreement in the present case did not make De Lashmutt a principal so that Green could have sued him at law; and, not being a jjrincipal, Wolfe was not his surety, for there cannot be a surety without a principal. American Bonding Co. v. Pueblo Invest. Co. 9 L.R.A.(N.S.) 557, 80 C. C. A. 97, 150 Fed. 17, 10 Ann. Cas. 357; 32 Cyc. 23 B.

An extract from a decision of Chief Justice Alvey, when on the Maryland court of appeals, in Chilton v. Brooks, 72 Md. 554, 20 Atl. 125, is pointed to with much confidence as showing conclusively that the Keller Case is not- open to the construction which we have placed upon it. The learned jurist in that decision gave a quotation from another case, to the effect that where the mortgagor, after giving the mortgage, conveyed the land and later paid the debt, voluntarily or by compulsion, he was thereby “substituted to the mortgaged security as it originally existed, with the- right to proceed immediately against the land for his indemnity;” and then- added that the conclusion deduced in the Keller Case, was quite, in harmony with this doctrine. But this had no bearing upon what we are considering in the present case. It deals with the right of the mortgagor under certain circumstances to proceed against the land, not with the contention, here urged, that the mortgagor under the facts disclosed ceased to bo a principal and became merely a surety as to the creditor, and that, too, without the latter’s" consent, or even knowledge. Everything in the reasoning of the decisions of the Supreme Court of the United States upon the subject absolutely excludes the idea that the grantor becomes a surety as to the creditor in a case like the one before us.

Whether, therefore, we consider the first class of authorities, or the second, — the Federal, — the outcome must be the same. Under the former’, the failure by the appellant to show that Groen knew of the assumption of the debt by De Lashmutt at the time she granted the extension renders unavailable his claim that, because he ivas a surety of I)e Lashmutt, she released him by the extension. And according to the latter, which are controlling, even though he had shown such knowledge on her part, he could not succeed, because he was not as to her a surety.

Third. Finally it is urged as an equitable defense, under the Act of Congress of .March 3, 1915, that because of the extension, and the consequent failure to foreclose when the note became due by its original terms, the defendant was damaged, and is entitled to have his damages considered in determining the amount due upon the note. But he, not being a surety, has no right to complain on that score. The holder of the note was not obliged to .foreclose. He could, as he did, pursue his remedy at law. Jones, Mortg. (itli ed. sec. 1220. When the note became due, defendant could have paid it and then looked for reimbursement to J)e Lashmutt upon his agreement of assumption. The extension, to which defendant ivas not a party, did not bind him, and could not in any way affect his rights against. I)e Lashmutt. He had precisely the same rights after the extension as he had before. Denison University v. Manning, 65 Ohio St. 138-151, 61 N. E. 706. If, therefore, he did not avail himself of his right to pay the debt and then proceed against Do Laslnnutt, but instead awaited action by the holder of the note, during which time, as he asserts, the property securing the debt greatly depreciated, the fault was his, and he is not entitled to any relief on that account against the appellee. The decisions which appellant cites in support of his argument upon this point proceed upon the theory that the mortgagor, by reason of the assumption of the debt by his grantee, became the creditor's surety, but, as we reject that rule, the cases are not applicable.

The judgment of the court below is right and it is affirmed, with costs. A firmed.