Conerty v. Richtsteig

• Decision Date: 12 May 1942
• Docket Number: No. 26191.,26191.
• Citation: 379 Ill. 360,41 N.E.2d 476
• Parties: CONERTY v. RICHTSTEIG et al.
• Court: Illinois Supreme Court

379 Ill. 360

41 N.E.2d 476

CONERTY

v.RICHTSTEIG et al.

No. 26191.

Supreme Court of Illinois.

March 16, 1942.

Rehearing Denied May 12, 1942.

Suit by Nellie M. Conerty against Richard J. Richtsteig, Marie Richtsteig, his wife, and others, to foreclose a trust deed.From a judgment of the Appellate Court for the First District, 308 Ill.App. 321, 31 N.E.2d 351, affirming a decree for plaintiff, the named defendants appeal.

Judgment and decree reversed.Appeal from Second Division, Appellate Court, First District, on Appeal from Circuit Court, Cook County; Stanley H. Klarkowski, Judge.

Wolff, Keane, O'Leary & Gomberg, of Chicago (Oscar M. Wolff and Albert A. Gomberg, both of Chicago, of counsel), for appellants.

Ryan, Condon & Livingston, of Chicago (David J. Greenberg, John J. Elward, and Robert I. Livingston, all of Chicago, of counsel), for appellee.

SMITH, Justice.

Nellie M. Conerty brought suit in the circuit court of Cook county to foreclose a trust deed executed by Richard J. Richtsteig and Marie Richtsteig, his wife.The trust deed was foreclosed and a deficiency judgment for $5,442.42 was rendered against the Richtsteigs and others.The Richtsteigs appealed to the Appellate Court for the First District which affirmed the decree and we have granted leave to appeal.

The undisputed facts are that on July 1, 1920, Richard J. Richtsteig purchased the property located at the northeast corner of Congress and Sangamon streets, Chicago, for $15,000.As part of the purchase price he and his wife executed their joint promissory note for $9,000, dated July 1, 1920, due July 1, 1925, with interest until maturity at 6 per cent per annum, and after maturity, at seven per cent.To secure payment of this note the Richtsteigs executed a trust deed on the property which contained, inter alia, the following provision: ‘The grantors covenant and agree * * * to pay said indebtedness and the interest thereon, as herein and in said notes provided, or according to any agreement extending time of payment.’On February 6, 1923, the Richtsteigs sold the mortgaged property to Hecht Nielsen for $18,000.Nielsen assumed the first mortgage of $9,000, gave the Richtsteigs $5,300 in cash and a second mortgage for $3,700.The interest on the note was paid until maturity July 1, 1925.A few days before the maturity of the note, the agent for the owner of the note and Nielsen and his wife executed an agreement whereby payment of the principal debt was extended for five years, or until July 1, 1930, and the rate of interest was increased to six and one-half per cent.At the time of this extension the mortgaged property was reasonably worth from $18,000 to $20,000.In 1930, the note was extended until July 1, 1935.The interest on the mortgage debt was paid by Nielsen until July 1, 1936.Upon default in payment, the holder of the note, Nellie M. Conerty, filed this foreclosure suit September 4, 1936.The Richtsteigs did not have personal knowledge of either of the above extensions, and had no connection with the property or the loan from the date they sold the property to Nielsen in 1923, until they were served with summons in the foreclosure suit on September 11, 1936.As stated above, the trust deed was foreclosed, the property sold, and a deficiency judgment of $5,442.42 was rendered against the Richtsteigs.

The appellants contend that the Statute of Limitations has run as to them; that the holder of the note was guilty of laches; that the provision in the trust deed quoted above did not authorize an extension of the time of payment without their consent and that the extensions made to Nielsen did not prevent the Statute of Limitations from running as to them.

The decision of these questions depends upon the effect to be given to the provision in the mortgage, above quoted, on the liability of appellants.The note was executed and delivered on July 1, 1920.It was due on its face July 1, 1925.Nielsen assumed the payment of the mortgage debt by his acceptance of the deed to the property.This deed was dated February 6, 1923.It is conceded in the record that appellants did not make any payments on the note after that date.This suit was brought on September 4, 1936.A cause of action on the note against appellants was therefore barred at the time the suit was brought unless the extension agreements entered into between the holder of the note and Nielsen were binding on appellants.

After the date of the deed to Nielsen and with knowledge of the fact that he had purchased the property and assumed the debt, the holder of the note accepted and treated Nielsen as the principal debtor and dealt with him as such.In this situation, the relation of the parties to the indebtedness was definitely changed.As a result of this transaction, Nielsen became the principal debtor and appellants sureties.The relation of appellants to the debt was thereafter solely that of suretyship with all its incidents and limitations.This rule is well established by the decisions of this court.In the case of Prudential Insurance Co. v. Bass, 357 Ill. 72, 191 N.E. 284, 285, this court, quoting from Pomeroy's Equity Jurisprudence, 4th Ed., vol. 3, sec. 1206, said: ‘When a grantee thus assumes payment of the mortgage debt as a part of the purchase price, the land in his hands is not only made the primary fund for payment of the debt but he himself becomes personally liable therefor to the mortgagee or other holder of the mortgage.The assumption produces its most important effect by the operation of equitable principles upon the relations subsisting between the mortgagor, the grantee and the mortgagee.As between the mortgagor and the grantee, the grantee becomes the principal debtor, primarily liable for the debt, and the mortgagor becomes the surety, with all the consequences flowing from the relation of suretyship.As between these two and the mortgagee, although he may treat them both as debtors and may enforce the liability against either, still, after receiving notice of the assumption, he is bound to recognize the condition of suretyship and to respect the rights of the surety in all his subsequent dealings with them.* * * While the mortgagee may release the mortgage without discharging the grantee, his release of the grantee, or his valid extension of the time of payment to the grantee without the mortgagor's consent, would operate to discharge the mortgagor.’The court then continued: ‘This rule is well established.While the courts of a few jurisdictions have held contrary views, a large majority of them have adopted the principles announced in the foregoing rule.The reason for the rule is, that the mortgagor on paying the mortgage debt has a right of subrogation, but by such subrogation he acquires only such rights as the creditor himself actually has.Where the creditor extends the time of payment, the surety, on paying the debt, cannot sue the principal debtor until the extended period has expired.Without such extension, he had the right to sue the principal debtor at any time after maturity of the debt.When he is deprived of this right by a contract of the mortgagee with the principal debtor extending the time of payment without his consent, the law releases him from liability.Asbell v. Marshall Building & Loan Ass'n, 156 Md. 106, 143 A. 715;Union Mutual Life Ins. Co. v. Hanford, 143 U.S. 187, 12 S.Ct. 437, 36 L.Ed. 118.’The same rule was announced and followed in Harts v. Emery, 184 Ill. 560, 56 N.E. 865;Dean v. Walker, 107 Ill. 540, 47 Am.Rep. 467, andFlagg v. Geltmacher, 98 Ill. 293.

Under the above rule there was a complete change of the relation of the parties to the contract of indebtedness as written in the note.Webster v. Fleming, 178 Ill. 140, 52 N.E. 975;Fish v. Glover, 154 Ill. 86, 39 N.E. 1081.The grantee became personally liable as principal debtor.Ingram v. Ingram, 172 Ill. 287, 50 N.E. 198.His liability, as such, was absolute.That liability is based on the assumption agreement and not on the note.It does not depend upon the validity of the mortgage.Webster v. Fleming, supra.The mortgagor cannot thereafter make any contract with his grantee with reference to the indebtedness without the consent of the morgagee.Bay v. Williams, 112 Ill. 91, 1 N.E. 340,54 Am.Rep. 209.The mortgagee cannot extend the time of payment to the grantee without thereby releasing the original maker.Fish v. Glover, supra;Home National Bank v. Estate of Waterman, 134 Ill. 461, 29 N.E. 503.Section 119 of the Negotiable Instruments act so provides.Ill.Rev.Stat.1941, chap. 98, par. 141.

It is insisted by appellee that appellants, by the provision in the mortgage which recites that the mortgagors agree to pay the mortgage debt, ‘according to any agreement extending the time of payment,’consented to any extension of the time of payment, although appellants were not parties to such extension agreement.This argument assumes that the note and mortgage constitute one instrument, and that any agreement relating to the indebtedness contained in the mortgage became a part of the note, although no such provision is found in the note itself.Here, there is no provision in the note making any of the terms of the mortgage a part of the note.The better rule seems to be, that the note and mortgage are separate undertakings.The note relates to, and contains the contract of the maker to pay the debt and is wholly independent of the mortgage.The mortgage is not dependent upon the note executed by the mortgagors, for its validity.The note which is the evidence of the indebtedness may be made by third parties, or a mortgage may be valid where there is no note given.The mortgage relates only to the real estate pledged as security for the payment of the debt.

Counsel have cited no cases, and we have found none, which are exactly in point on the facts here involved.There are many cases, however, which...