Guardian Depositors Corp. v. Brown

• Court: Michigan Supreme Court
• Writing for the Court: BUTZEL
• Citation: Guardian Depositors Corp. v. Brown, 290 Mich. 433, 287 N.W. 798 (Mich. 1939)
• Decision Date: 06 July 1939
• Docket Number: No. 76.,76.
• Parties: GUARDIAN DEPOSITORS CORPORATION OF DETROIT v. BROWN et al.

290 Mich. 433

287 N.W. 798

GUARDIAN DEPOSITORS CORPORATION OF DETROIT

v.BROWN et al.

No. 76.

Supreme Court of Michigan.

July 6, 1939.

Suit at law by the Guardian Depositors Corporation of Detroit, a Michigan corporation, against Roy E. Brown and Lillian K. Brown to collect deficiency remaining after foreclosure of mortgage. From an order dismissing the suit, the plaintiff appeals.

Order set aside and case remanded.Appeal from Circuit Court, Wayne County; Guy A. Miller, judge.

Argued before the Entire Bench.

Bodman, Longley, Bogle, Middleton & Farley, of Detroit, for appellant.

Clyde L. Fulton, of Highland Park, for appellees.

BUTZEL, Chief Justice.

In 1929, Simeon G. Trevethan and wife executed a first mortgage of which plaintiff subsequently became the owner by a series of mesne assignments. In the same year the mortgagors conveyed the mortgaged property to defendants Roy E. Brown and Lillian K. Brown. The warranty deed provided that it was ‘subject to a mortgage in the sum of $2,640 being principal and interest due to date on said mortgage, which second parties (defendants) assume and agree to pay.’ Pursuant to this contract of assumption, defendants made some payments on the property to the mortgagee. However, it appears from the meagre record before us that the mortgage was foreclosed by advertisement in 1934 and a sum insufficient to pay the amount of the debt was realized.

In 1938, plaintiff brought suit at law to collect the deficiency from defendants, relying on the express assumption of the mortgage as a contract for plaintiff's benefit within the operation of Act No. 296, Pub.Acts 1937 (Stat.Ann. § 26.1321). The first section of this act, which had an effective date of October 29, 1937, is as follows: ‘Any person for whose benefit a promise is made by way of contract, as hereinafter defined, shall have the same right to enforce said promise that he would have had if the said promise had been made directly to him as the promisee.’ Defendants moved to dismiss on the ground that the declaration stated no cause of action since no privity existed between the parties; and that the statute was constitutionally inapplicable to agreements made prior to its passage because it created a right where none had before existed and thus impaired the obligations of contract. The trial court granted the motion and plaintiff has appealed.

Although appellee seemingly did not argue it below, the applicability of the statute to a contract where the beneficiary is not specifically named was questioned by the trial court and is also raised in appellee's brief. Since this problem may arise if further proceedings are had, and since we do not pass on the constitutionality of a statute which is inapplicable to the facts presented, we call attention to the unambiguous provisions of section 2 of Act No. 296: ‘A promise shall be construed to have been made for the benefit of a person whenever the promisor of said promise has undertaken to give or to do or to refrain from doing something directly to or for said person.’ The standard which the legislature has prescribed for determining when a ‘promisor has undertaken’ to perform or refrain from performing a given act, we think is an objective one, determined from the form and meaning of the contract itself. The language of the assumption clause above quoted leaves no doubt that the defendants' promise to pay off the mortgage must be taken to mean that they will pay to the party holding the mortgage and entitled to payment. ‘The name of the person to be benefited by the contract need not be given, if he is otherwise sufficiently described or designated. Indeed, he may be one of a class of persons, if the class is sufficiently described or designated.’ Burton v. Larkin, 36 Kan. 246, 13 P. 398, 400,59 Am.Rep. 541. Even in jurisdictions holding to the so-called ‘intention rule,’ which was favored by the trial court, it is immaterial that the actual intent of the promisee was to protect himself from paying the debt to the third person if the parties did in fact contemplate that the promisor should assume a direct obligation to the beneficiary. Cf. Byram Lumber & Supply Co. v. Page, 109 Conn. 256, 146 A. 293;Carson Pirie Scott & Co. v. Parrett, 346 Ill. 252, 178 N.E. 498, 81 A.L.R. 1262, and collected authorities in 81 A.L.R. 1285. We think there is no doubt that plaintiff was a third party beneficiary within the meaning of Act No. 296. See the helpful discussion in Grismore, ‘Beneficiary Contracts in Michigan,’ 8 Detroit Law Review 1, 4 et seq.; Restatement of the Law of Contract, § 133.

At the threshold of a discussion of the rights of third party beneficiaries, we are confronted with such a mass of law that we can make no attempt to survey it within the confines of a single opinion. The English rule prohibiting beneficiaries from suing on a contract has, to greater or lesser degree, been abandoned or radically modified by exceptions and qualifications in almost every State of the Union. See Williston, Contracts, Rev.Ed., Chap. XIV, 1029; annotation in 81 A.L.R. 1271. Today in most States both a donee and a creditor beneficiary can sue at law and in equity to enforce rights under the contract. See Restatement of the Law of Contracts, Chap. IV, 151. Michigan, however, has been one of the few remaining jurisdictions which have adhered to the old rule. Many of our statements to the effect that a third party cannot sue even though the contract was made for his benefit are collected in the concurring opinion of Mr. Justice Potter in People's Savings Bank v. Geistert, 253 Mich. 694, 235 N.W. 888. But there have been incursions into this rule as demonstrated by the cases cited in Smith v. Thompson, 250 Mich. 302, 230 N.W. 156, 73 A.L.R. 1389. This latter decision, our last definitive utterance on the question, went far toward bringing our law in accord with the almost unanimous view elsewhere. See 29 Mich.Law Rev. 365, 366; Smith v. Thompson, 250 Mich. 302, 230 N.W. 156, 73 A.L.R. 1389, 1395. All question has been removed by Act No. 296, which broadly empowers third party beneficiaries to sue as promisees. This statute must be regarded as highly remedial and subject to a liberal construction to effect the corrective purposes of the legislature in passing it. See, Montague Mfg. Co. v. Homes Corp., 142 Va 301, 128 S.E. 447.

We are here faced squarely with the question of whether the Act may be applied to contracts created before it went into effect, as provided in § 5 (Stat.Ann. § 26.1235). The trial court found that a new and substantial right was created by the statute, rather than a mere additional remedy, and for this reason held that to apply it to the assumption agreement made between defendants and the Trevethans would impair the obligations of the contract and violate due process in contravention of both State and Federal Constitutions (Const.Mich. art. 2, § 16; U.S.C.A.Const. Amend. 14).

Admittedly, a statute cannot be retroactive so as to change the substance of a contract previosly entered into. The rule as to remedy has but recently been reiterated as follows: ‘The Legislature may modify, limit, or alter the remedy for enforcement of a contract without impairing its obligation, but in so doing it may not deny all remedy or so circumscribe the existing remedy with conditions and restrictions as seriously to impair the value of the right.’ Richmond Mortgage Corp. v. Wachovia Bank, 300 U.S. 124, 128, 57 S.Ct. 338, 339, 81 L.Ed. 552, 108 A.L.R. 886. To like effect, see City of Pontiac v. Simonton, 271 Mich. 647, 261 N.W. 103.

What, then, was the substantial right secured to defendants by their contract which has been restricted or impaired by the statute permitting plaintiff to sue them directly at law where previously he could not? Before the statute defendants were of course liable to the Trevethans, their assignors, with whom they had agreed to pay off the mortgage. See, Crawford v. Edwards, 33 Mich. 354. Not only could plaintiff foreclose against the land upon default in the mortgage, but he was also permitted in equity to proceed directly against defendants for any deficiency remaining after the sale of the premises. Anderson v. Thompson, 225 Mich. 155, 195 N.W. 689;Corning v. Burton, 102 Mich. 86, 62 N.W. 1040. Although we have often said that deficiency decrees are really substitutes for actions at law and are ‘governed by the rules which would apply at law,’ Lutz v. Dutmer, 286 Mich. 467, 481, 282 N.W. 431, 436, and cases there cited, direct equitable action by the beneficiary was justified in the case of mortgage foreclosures by statutory authority. 3 Comp.Laws 1929, § 14368; Stat.Ann. § 27.1136. However, the rule was extended to land contract cases because of equitable principles of subrogation and avoidance of multiplicity of suits. Barnard v. Huff, 252 Mich. 258, 233 N.W. 213, 77 A.L.R. 259.

Appellees argue, however, that the claim plaintiff might have asserted against them for a deficiency decree was contingent and permissive, so that giving plai...