First National Bank of Benson v. Gallagher

• Decision Date: 29 November 1912
• Docket Number: 17,863 - (106)
• Citation: 138 N.W. 681,119 Minn. 463
• Parties: FIRST NATIONAL BANK OF BENSON v. PATRICK S. GALLAGHER and Another
• Court: Minnesota Supreme Court

138 N.W. 681

119 Minn. 463

FIRST NATIONAL BANK OF BENSON v. PATRICK S. GALLAGHER and Another

Nos. 17,863 - (106)

Supreme Court of Minnesota

November 29, 1912

Action in the district court for Swift county to recover $971.79 deficiency after foreclosure of a mortgage. The defense is stated in the opinion. The case was tried before Qvale, J who directed a verdict in favor of plaintiff for $1,020.84. From an order granting defendants' motion for a new trial, plaintiff appealed. Affirmed.

SYLLABUS

Parol agreement to discharge mortgagor -- statute of frauds.

The mortgagor in a mortgage of real property, the mortgage being a mere incident to the debt or obligation secured, may be released and discharged from his personal liability for the payment of the debt by a subsequent parol agreement with the mortgagee founded upon a valuable consideration; and such an agreement is not in violation of the statute of frauds.

Parol agreement to discharge mortgagor -- Evidence.

An agreement in parol to release the mortgagor from his personal liability must be established by clear and convincing evidence, for the effect thereof is to set aside the written contract.

E. L. Thornton, for appellant.

John I. Davis, for respondents.

OPINION

BROWN, J.

On March 1, 1906, defendants, husband and wife, made and delivered to plaintiff their promissory note for the sum of $2,500, payable in five years, as and for a loan of that sum then made to them by the bank. To secure the payment of the note defendants executed a mortgage upon real property owned by the husband. Default was made in the payment of the debt and the mortgage was duly foreclosed, plaintiff becoming the purchaser at the sale. The amount bid for the property at the sale was $2,500, and there remained then due upon the mortgage, principal and unpaid interest, the sum of $971.79. This action was brought to recover the deficiency. Defendants interposed in defense that on August 15, 1907, long before the mortgage indebtedness became due, the parties entered into a parol agreement by which, for the consideration of $180, then paid to plaintiff in the form of a promissory note executed by defendants, plaintiff agreed to release and discharge defendants from personal liability for the payment of the indebtedness, and to look only to the mortgaged property, which defendants allege was then worth $3,500. In performance of the agreement, defendants then made and delivered to plaintiff their promissory note for the amount stated. On the trial, evidence tending to establish this defense was received over plaintiff's objection, but was subsequently stricken out on motion, and a verdict directed for plaintiff for the amount claimed. Thereafter, on defendants' motion for a new trial, the court concluded that in striking out the evidence error was committed and a new trial was granted. Plaintiff appealed.

It is the contention of plaintiff that the alleged contract or agreement releasing defendants from their personal liability, conceding it to have been entered into as claimed, was void and unenforceable because not in writing; that it was in violation of the statute of frauds, since it modified by parol the terms of the mortgage, required by statute to be and which was in writing. Whether this contention be sound presents the only substantial question on this appeal.

1. It is no doubt elementary that a contract, required by the statute of frauds to be in writing and executed in a particular manner, can only be changed or modified subsequent to its execution by a writing of equal solemnity duly signed and executed by the parties, except perhaps in cases where the doctrine of equitable estoppel applies. But the rule has no application to the facts in the case at bar. The effect of the agreement here involved was to discharge the personal liability of the mortgagors and was not a modification of the terms of the mortgage. In the case of a mortgage securing the payment of a promissory note, or other specified indebtedness, the debt secured is the principal obligation, the mortgage a mere incident thereto. The assignment of the debt carries with it the mortgage, and the payment of the debt, as between the parties, extinguishes the lien of the mortgage. If the verbal agreement in the case at bar had been for the payment of two thousand dollars, in full discharge of the secured indebtedness, there can be no question, as between the mortgagors and the mortgagee, that the mortgage would have been ipso facto satisfied, the agreement and payment being made before the debt became due. Schweider v. Lang, 29 Minn. 254, 13 N.W. 33. Nor can there...