Clark v. Henderson , 62 N.D. 503 ( 1931 )

A rehearing was granted in this case. Additional briefs were filed, and the whole case was reargued. It is the claim of the defendant that, under the assumption clause contained in the deed, he may show, by parol testimony: First, that he did not assume and agree to pay the mortgages in question. Second, that there was no consideration for the mortgages; and, third, the case being one of principal and surety, that plaintiff can recover from defendant no more than he actually paid. If he paid nothing, he can recover nothing.

All these points were considered and disposed of adversely to the contention of the defendant in the main opinion. But since the matter has been so extensively and so earnestly presented on rehearing, we have re-examined the whole case, and while, as a result of such investigation, we are convinced that the main opinion is correct and must be adhered to, we will briefly set forth our reasons therefor.

The defendant assumed and agreed to pay the mortgages in question, by the following provision contained in the deed: ". . . free from all encumbrances except those of record which the party of the second part hereby assumes and agrees to pay as a part of the purchase price of the land herein transferred and sold."

In order to get at the root of the controversy here, we should first understand whether this assumption agreement is a contract to pay or a contract of indemnity. If the contract is one of indemnity only, then there would be merit in defendant's contention.

By this contract, the defendant assumed and agreed to pay the debt. While under such provisions the courts often say that the grantee becomes the principal debtor, and the grantor the surety, for the payment of the debt, it is more than a contract of indemnity. It becomes his personal obligation and contract to pay.

As said in Locke v. Homer, 131 Mass. 93, 41 Am. Rep. 199: "The object of such an agreement may, in a general way, be said to be to indemnify or protect the grantor against the debt for which he is previously liable. But the manner in which this is to be done is fixed by the terms of the agreement. It is not merely to reimburse him for such damages as he may suffer by being compelled to pay the debt, but it is an agreement by the grantee that he will assume the debt as his own, and that the grantor shall not be called upon to pay it, or be put to any molestation or inconvenience by reason thereof."

In Perry v. Ward, 82 Vt. 1, 71 A. 721, the court said: "As the defendants agreed to pay, they were bound to do more than to indemnify and save harmless. They were bound to pay."

So, in Morlan v. Loch, 95 Kan. 716, 149 P. 431, it is said: "The defendant has not done the thing he contracted to do. He contracted to pay. He did not contract to indemnify, nor to save harmless. The contract can be performed in but one way. That is by payment. When he fails to pay, does the plaintiff, without first paying the debt, have a right of action against him? The plaintiff's paying the debt was not a condition, or a part of the contract. The plaintiff may be unable to pay the debt until the money has been collected by her from the defendant. The payment of this debt may save the plaintiff from insolvency. In the ordinary case of principal and surety, the surety parts with nothing until he pays the debt for which he bound himself. Here the plaintiff parted with the land which the defendant received. We must conclude that the plaintiff has a right of action for the nonperformance of the contract, without having first paid the mortgage debt or the judgment rendered thereon. This is in harmony with the great weight of authority."

Likewise, the court, in Callender v. Edmison, 8 S.D. 81, 65 N.W. 425, said: "There being a well-settled distinction between an agreement to indemnify and an agreement to pay, an action upon a breach of covenant to pay to a third party, at a specified time, a stipulated amount of money, and to cause certain real property to be released from the lien of a mortgage given by the plaintiff to secure the payment thereof, is maintainable by the promisee against the promisor, although the former has neither paid the money nor sustained actual injury by reason of the failure on the part of the latter to perform his contract."

So, in Gregory v. Hartley, 6 Neb. 356, the court said: "The rule of law will not be questioned that when a purchaser of real estate agrees to assume and pay certain outstanding indebtedness against the vendor, and save him harmless from the same, if he fail to do so, it is not necessary, in order to give the vendor a right of action against him, that he should himself have first paid the debt which the purchaser assumed and agreed to pay."

By the provision contained in the deed, the defendant assumed and agreed to pay the mortgages. It is not an agreement to indemnify the grantor.

With respect to the contention that the defendant had a right to show by parol testimony, that he did not agree to assume the mortgages in question, though they were of record at the time, the court, in Hott v. McDonough, 3 Ohio C.C. 177, 2 Ohio C.D. 100, said: "The difficulty in this case arises from a misconception of the effect of the evidence objected to. It seems to have been regarded by the defendant as affecting only the consideration of the conveyance, and to disprove a breach of the covenants; whereas it is clear that it went farther in its effect, and, as we have already said, operated to abridge and limit the express terms of the deed."

In the case of Smith v. Taylor, 82 Cal. 533, 23 P. 217, the court held that under a written contract for the sale of land in which the purchaser agreed to assume a certain mortgage, parol evidence was not admissible, as between the parties to the contract, to show that there was a parol understanding or agreement between them as to how, when, and by whom the other encumbrances were to be paid. When the parties reduced their agreement to writing, the writing superseded all other understandings or agreements between them on that subject.

Likewise, in Muhlig v. Fiske, 131 Mass. 110, in an action by the grantor against the grantee, it was held that the grantee, having accepted a deed of conveyance with a clause assuming the mortgage upon the premises, cannot, in the absence of a suggestion of fraud in the execution or delivery of the deed, impair the legal effect of his own act, by parol evidence showing that he had never agreed to assume to pay the mortgage, nor had he authorized or known of the insertion of such an agreement in the deed.

So, in Weiss v. Clamitz, 203 Ill. App. 246, the court held that where the contract provided that the land should be subject to the specific encumbrance, payable at specified times, parol evidence of an agreement to change the terms of the contract so as to permit an encumbrance clearly different from the one originally provided for, is not admissible.

As already shown, in an action by a grantor against his grantee, on his assumption of and agreement to pay a mortgage debt on the premises conveyed, which he has failed to pay, he may recover the amount of the mortgage debt, although no part thereof has been paid by the grantor. Upon this subject, the court, in Burbank v. Roots, 4 Colo. App. 197, 35 P. 275, said: "A recital in a deed that the property conveyed is subject to a mortgage which forms a part of the consideration, and stops there, creates no personal liability on the part of the grantee, and the grantor and mortgagee can only look to the property. . . . But when the recital or exception is, `which mortgage the grantee assumes, or assumes and agrees to pay,' or the conveyance is made `subject to the payment of an outstanding mortgage,' the case is different. The assumption of the mortgage makes such sum a part of the purchase money; so much of the consideration as is necessary to pay the mortgage is taken from the consideration, and appropriated to the payment of the mortgage. It was not the taking of the property subject to the mortgage, but an agreement to pay the debt as contracted by the grantor."

So, in Baldwin v. Emery, 89 Me. 496, 36 A. 994, the court said: "The plaintiff has not paid the full mortgage debt, but this makes no difference. The defendant agreed to pay it, and the law implies a promise that he shall pay it either to the plaintiff or to the mortgagee."

In Stitcher v. Cox, 52 Neb. 532, 72 N.W. 848, the court said: "Had the contract entered into by Yeazel been to indemnify the grantor merely, then the latter must have shown damages to entitle him to recover. But such was not the undertaking of Yeazel. He promised to pay the mortgage debt, and it was not necessary for Stitcher to prove damages to entitle him to recover, and the measure of damages is the amount agreed to be paid. Yeazel, by not paying off the mortgage, has broken his contract; and, to the amount of the mortgage debt, the grantor has not received the stipulated consideration for the land. He is entitled to recover the same himself, by reason of the failure of the grantee to perform his promise. The doctrine that, by virtue of the clause in the deed whereby Yeazel assumed the mortgage to Wilson, a right of action accrued in favor of the grantor, and against Yeazel, for the amount unpaid on the mortgage debt at its maturity, although the grantor had not himself paid any part of the debt which Yeazel assumed and agreed to pay, is abundantly sustained by the authorities."

Also, by the great weight of authority, a purchaser who, by the terms of a conveyance of land to him, expressly assumes the payment of a mortgage on the property conveyed, is estopped from questioning the validity of the mortgage. Skinner v. Reynick, 10 Neb. 323, 6 N.W. 369, 35 Am. Rep. 479; Moore v. Boise Land O. Co. 31 Idaho, 390, 173 P. 117; Gowans v. Pierce, 57 Kan. 180, 45 P. 586; Midland Sav. L. Co. v. Neighbor, 54 Okla. 626, 154 P. 506; Ostran v. Bond, 69 Okla. 310, 172 P. 447; Parkinson v. Sherman, 74 N.Y. 88, 30 Am. Rep. 268; Curry v. Lafon, 133 Mo. App. 163, 113 S.W. 246; Santa Cruz v. Wykes (C.C.A. 9th) 202 Fed. 357.

In the case of Parkinson v. Sherman, 74 N.Y. 88, 30 Am. Rep. 268, supra, the court said: "The question then arises whether the portion of the defendant's answer which was stricken out presents any defense to the plaintiff's action. The rights of the defendant under such a state of facts are, we think, well settled by judicial adjudications. It is held that where a grantee of mortgaged premises takes a deed of the same subject to the mortgage, and thereby assumes to pay the mortgage, he is estopped from contesting the consideration and validity of the mortgage."

By the assumption provision in the deed, the defendant not only assumed, but agreed to pay the mortgages of record, and they were regarded by the clause as a part of the purchase price. Under such provisions contained in the deed, the grantee is estopped from questioning the validity of the mortgages and notes secured thereby, even though they were void as between the mortgagor and mortgagee, as being against public policy. Upon this subject, in Curry v. Lafon, 133 Mo. App. 163, 113 S.W. 246, supra, the court said:

"Defendant insists, however, that if the note was void as against public policy, then there was no debt to be assumed by the grantee. It is unnecessary to consider this proposition further than to say that, under all of the authorities, he is estopped from disputing the covenant in his deed recognizing the debt as valid and assuming its payment. Although the notes in the first instance were invalid on the grounds of public policy referred to — and this question it is not necessary to decide — the defense is precluded by estoppel. There was certainly a valid consideration for the covenant contained in the deed, by which the defendant received title to Curry's interest in the equity of redemption; and, although the note was void in the first instance, it would operate as a sufficient memoranda to show the amount and character of indebtedness which was assumed by a valid obligation contained in the deed. Be this as it may, the defendant is estopped, at all hazards, from asserting that the note was originally invalid."

We therefore adhere to the former opinion.

BURKE, J., did not participate; Hon. M.J. ENGLERT, Judge of the First Judicial District sitting in his stead.

CHRISTIANSON, Ch. J., and NUESSLE, BURR and BIRDZELL, JJ., concur.