Indus. Trust Co. v. Goldman

• Decision Date: 28 July 1937
• Docket Number: No. 7744.,7744.
• Citation: 193 A. 852
• Parties: INDUSTRIAL TRUST CO. v. GOLDMAN.
• Court: Rhode Island Supreme Court

193 A. 852

INDUSTRIAL TRUST CO.

v. GOLDMAN.

No. 7744.

Supreme Court of Rhode Island.

July 28, 1937.

Exceptions from Superior Court, Providence and Bristol Counties; Leonidas Pouliot, Jr., Judge.

Action in assumpsit by the Industrial Trust Company against James Goldman. Verdict was directed for the plaintiff, and the defendant brings exceptions.

Exceptions sustained and case remitted to the superior court for a new trial.

Huddy & Moulton, Edward W. Lincoln, and Bruce M. Docherty, all of Providence, for plaintiff. Max Winograd and William J. Carlos, both of Providence, for defendant.

MOSS, Justice.

This is an action of assumpsit to recover on a promissory note made by the defendant under date of June 19, 1925, for the sum of $15,000, payable to the order of Jacob Ernstof five years after date, with interest, payable semiannually in advance at the rate of 8 per cent. per annum. The payment of this note was secured by a mortgage deed to Jacob Ernstof executed by the defendant on the date of the note, covering certain real estate in the city of Providence in this state and duly delivered and promptly recorded.

The note was indorsed and delivered and the mortgage was assigned and transferred by Jacob Ernstof to the plaintiff on November 20, 1925, and the instrument of assignment and transfer was then duly recorded. The note was not paid at its maturity, but the date of its maturity was extended from time to time by the payment to, and the receipt and acceptance by, the plaintiff of interest in advance and certain partial payments of principal were received by the plaintiff. Finally, on September 19, 1931, the note being then still held by the plaintiff and in default, the mortgaged property was sold by the plaintiff under and in accordance with the power of sale contained in the mortgage deed; and the net proceeds of the sale were applied in part payment of the note.

On April 7, 1933, the present action was brought to recover the remainder still unpaid on the note and interest; and to the declaration the defendant pleaded the general issue. At the trial of the case before a justice of the superior court and a jury the above facts were proved in detail and a witness for the plaintiff testified that the amount then due on the note, including interest, was $14,359.59. This testimony was not contradicted. At the conclusion of the trial, the trial justice, on the motion of the plaintiff, directed the jury to return a verdict for the plaintiff in that amount. To this direction the defendant took an exception; and the case is now before us on the defendant's bill of exceptions, setting forth that exception and numerous exceptions taken by him to rulings of the trial justice as to the admissibility of certain evidence, which the defendant tried to get before the jury.

The principal, if not quite the only, question of law raised by these exceptions, is the one raised by the refusal of the trial justice to permit the defendant to introduce evidence to prove that on July 24, 1925, he sold and conveyed the property covered by the mortgage to one Samuel Levin, who, by accepting and recording the deed of conveyance and in consideration thereof, assumed the mortgage and agreed with the defendant to pay the note on which the present action is based and the payment of which was secured by the mortgage; that later and before the maturity of the note Samuel Levin conveyed the mortgaged property to one Daniel Marwell, who likewise, in consideration of the conveyance, assumed the mortgage and agreed to pay the note; and that, thereafter and with notice of these facts, and without the consent of the defendant and indeed against his protests, the plaintiff repeatedly, by receiving from Daniel Marwell payments of interest in advance on the note, extended its date of maturity.

The defendant, in offering this evidence, contended, in substance, that the result of these transactions between him and Levin, and between the latter and Marwell, was that as among themselves Marwell became primarily liable for the payment of the mortgage debt in accordance with the terms of the note and the defendant and Levin became only sureties for the payment of this debt. He contended also that the plaintiff, by its dealings with Marwell, recognized and accepted this change in the situation; and that by thus agreeing with Marwell for extension of the maturity of the note, without the assent and against the protest of the defendant, it released the defendant from all liability on the note.

The trial justice excluded this offered evidence, solely on the ground that under General Laws 1923, chapter 227, being the negotiable instruments law, the facts which this evidence was offered to prove would not constitute a defense for the defendant in this action. Exceptions were taken by the defendant to numerous rulings by the trial justice excluding such evidence on this ground. It is not in dispute that the receipt by a note-holder of interest in advance to a date beyond the maturity of the note involves an agreement by him extending the maturity to that date.

The question raised by the exclusion of the offered testimony on the above ground is one that has been the subject of much controversy in a number of states since their enactment of the uniform negotiable instruments act and the subject of much discussion by textwriters and by commentators on the cases. The decisions are not numerous and are fairly evenly divided between the two sides of the question.

Before the enactment, in the several states, of the uniform negotiable instruments law, hereinafter referred to as the N.I.L., there was much controversy as to whether such facts as the defendant in this case offered to prove constituted a defense to the maker of a note, when an action was brought against him thereon. But in the great majority of the states in which that question was decided the decisions were in favor of the defense. This is virtually admitted by the plaintiff's counsel in the instant case.

This question, apart from the N.I.L., seems never to have been squarely decided in this state. It was, however, decided in Urquhart v. Brayton (1878) 12 R.I. 169, in an opinion by Durfee, C. J., that where property subject to a mortgage had been conveyed and the grantee, in consideration of the conveyance, had assumed the mortgage and agreed to pay the mortgage debt, the mortgagee could maintain an action against the grantee for non-payment of that debt at its maturity. This decision seems to have been based by the majority of the court on the theory that, by thus accepting the grantee's agreement with the mortgagor to pay the mortgage debt and bringing action upon it, the mortgagor had completed a novation. It would seem to follow logically from this that the mortgagee must have thereby released the mortgagor as his consideration for the novation. But that conclusion has never been made the basis of a decision for a mortgagor in any later case in this state.

In Mechanics' Savings Bank v. Goff (1882) 13 R.I. 516, a mortgagor B had conveyed the mortgaged property to A, who conveyed it to D, and D then conveyed it to E, each successive grantee assuming and agreeing to pay the mortgage indebtedness to the mortgagee, as a part of the consideration for the conveyance. It was held, Durfee, C. J., again writing the opinion, that the mortgagee could maintain an action against the second grantee for non-payment of the indebtedness. It was suggested by the court that the case might be regarded as one of novation or as one of the retention by the defendant grantee, for the benefit of the mortgagee, of a part of the purchase money.

In Wood v. Moriarty (1887) 15 R.I. 518, 9 A. 427, it was held, in an opinion by Durfee, C. J., that if B, being a debtor of C, makes an agreement with A whereby A, for a consideration moving from B, assumes B's debt to C, then C may maintain an action against A for the debt; and that, by the bringing of such action, the contract between B and A is adopted by C as made for his benefit by B. The court, arguendo, also said that C, by bringing an action against A discharges B. The court said that the contract as between A and B was not collateral but substitutional. Urquhart v. Brayton, supra, was cited with approval. In Phenix Iron Foundry v. Lockwood (1900) 21 R.I. 556, 45 A. 546, 547, the same general view was taken, the court stating that, as said in Urquhart v. Brayton, the transaction was "practically a novation."

In Kehoe v. Patton (1901) 23 R.I. 360, 50 A. 655, also a simple case of an agreement by one party to pay the other party's debt to a third person, the same idea was applied and Urquhart v. Brayton was cited as authority. It was cited again as an authority in Smith v. Union Insurance Co. (1903) 25 R.I. 260, 55 A. 715, 105 Am.St. Rep. 882, together with Wood v. Moriarty, supra, and Kehoe v. Patton, supra. Wood v. Moriarty was again cited as an authority in a dictum in Burt v. Modern Dye & Rug Works, Inc. (1927) 48 R.I. 490, 139 A. 312. This line of authorities was also cited and recognized as in force in Blake v. Atlantic National Bank (1912) 33 R.I. 464, 82 A. 225.

The case of Urquhart v. Brayton, supra, and other cases in this state which have followed it do not directly and clearly support the majority doctrine at common law that a mortgagor is discharged by a valid agreement made, without his assent, between the holder of the mortgage and a grantee of the mortgaged property who had assumed and agreed to pay the mortgage indebtedness, extending the date for the payment of such indebtedness, but they are certainly in harmony with the result of the application of this doctrine in mortgage assumption cases. The only difference would seem to be that under the reasoning of the former cases the result would be reached on the doctrine of novation, while in the latter cases it would be reached on a doctrine of the law of suretyship.

The opinion of this court in ...