Fulmer v. Goldfarb

• Decision Date: 27 February 1937
• Citation: 101 S.W.2d 1108,171 Tenn. 218
• Parties: FULMER v. GOLDFARB.
• Court: Tennessee Supreme Court

101 S.W.2d 1108

171 Tenn. 218

FULMER v. GOLDFARB.

Supreme Court of Tennessee.

February 27, 1937

Error to Circuit Court, Shelby County; Ben L. Capell, Judge.

Suit by Al Goldfarb against Mrs. Hays Fulmer, wherein defendant pleaded a set-off. To review a judgment of the Court of Appeals sustaining the set-off, reversing judgment of circuit court for plaintiff, and dismissing the suit, plaintiff brings error.

Writ denied.

Andrew J. Donelson, of Memphis, for plaintiff in error.

Charles L. Glascock, of Memphis, for defendant in error.

MCKINNEY Justice.

In January, 1931, Mrs. Hays Fulmer and I. H. Evans made an exchange of real property in the city of Memphis, Mrs. Fulmer conveying to Evans her residence for a consideration of $25,000, and Evans conveying to Mrs. Fulmer his apartment house valued at $52,750. The residence was unencumbered. The apartment was encumbered with a first mortgage for $40,500 and a second mortgage for $2,250, evidenced by forty-five notes of $50 each, payable monthly; the payment of both mortgage debts being assumed by Mrs. Fulmer without, however signing or indorsing the notes evidencing the indebtedness.

In 1933, Evans transferred eleven of these $50 notes, before their maturity, to Al Goldfarb, in consideration of which Goldfarb agreed to extend the time of payment of an indebtedness owing to him by Evans, which was secured by a mortgage on a piece of real property. These notes were executed by Evans, payable to bearer, and were transferred by mere delivery.

The present suit was instituted by Goldfarb, in 1934, against Mrs. Fulmer upon her promise to pay said second mortgage notes. Mrs. Fulmer, by way of defense, pleaded a set-off of $17,000 which Evans owed her, and which she alleged grew out of the same transaction by which she assumed the payment of the second mortgage notes.

It is necessary to state the following additional facts: Mrs Fulmer conveyed her residence to Evans under an agreement that he could encumber same with a first mortgage for $10,000, and should then execute a second mortgage to secure the deferred purchase-money notes which he had executed to her for $15,000. Evans duly executed both mortgages but defaulted in paying these purchase-money notes, whereupon the residence was sold under the second mortgage, subject to the first, and was purchased by the daughter-in-law of Mrs Fulmer for $1,000, and who shortly thereafter sold it for $3,500, subject to the first mortgage. The evidence shows that this property had greatly depreciated in value as a result of the economic depression.

When the present action was begun, Evans, who is insolvent, owed Mrs. Fulmer $17,003.94 on the purchase of her residence, which included interest in the sum of $3,565.

The trial court entered judgment against Mrs. Fulmer for $730, which included interest and her attorney's fee. The Court of Appeals sustained Mrs. Fulmer's plea of set-off, reversed the circuit court, and dismissed the suit.

In this state the rights of a mortgagee as against a person assuming the payment of the mortgage debt upon a conveyance of the mortgaged premises are based upon the principle of a contract made for the benefit of a third person. Title Guaranty & Trust Co. v. Bushnell, 143 Tenn. 681, 228 S.W. 699, 12 A.L.R. 1512.

It is also the rule in this jurisdiction that a third person who is the beneficiary of such contract may maintain in his own name an action at law upon the contract against the promisor. Associated Indemnity Corp. v. McAlexander, 168 Tenn. 424, 79 S.W.2d 556; Christian v. John, 111 Tenn. 92, 103, 76 S.W. 906. This rule, however, is not absolute in all cases.

Section 8768 of the Code, in part, provides:

"The defendant may plead by way of set-off or cross action: ***

(3) Any matter growing out of the original consideration of any written instrument, for which the defendant would be entitled to recover in a cross action.

(4) Any equities between the defendant and the original party under whom the plaintiff claims, which by law have attached to the demand in the plaintiff's hands, and for which the defendant would be entitled to a recovery against such original party."

The principle of law invoked by defendant is stated succinctly in 41 C.J. 754, as follows:

"In the case of a contract by the grantee of mortgaged premises to assume the payment of the mortgage thereon, where the mortgagee is not a party to such contract and has paid no part of the consideration, he acquires no greater rights than the covenantee or promisee, and takes the covenant subject to all legal and equitable defenses which would have been available against him."

A more comprehensive statement of the rule is contained in 6 R.C.L. 886, in this language:

"Even in jurisdictions which recognize the right of a beneficiary to enforce the contract, the agreement between the promisor and promisee must possess the necessary elements to make it a binding obligation--in other words, it must be a valid contract between the parties to enable a third person, for

...