McDonald v. Finseth

• Decision Date: 08 January 1916
• Parties: McDONALD v. FINSETH et al.
• Court: North Dakota Supreme Court

32 N.D. 400

155 N.W. 863

McDONALD

v.FINSETH et al.

Supreme Court of North Dakota.

Dec. 14, 1915.

Rehearing Denied Jan. 8, 1916.

When one makes a promise to another for the benefit of a third person, such third person can maintain an action upon the promise, even though the consideration does not run directly from him, and even though at the time he knew nothing of the promise to pay him.

The grantee of mortgaged premises who purchases subject to a mortgage which he assumes and agrees to pay will be held liable for a deficiency arising on a foreclosure and sale, even though his grantor is not personally liable for the payment of the mortgage.

Where A. agrees to loan B. $2,000 and takes a note and mortgage therefor, and at the time fails to pay to B. the full sum of $2,000 on account of a shortage of funds, and before he can pay the same the mortgagor sells the property to C. subject to said mortgage, though no agreement to pay or assume the same is given in such deed, and A. and B. then agree that A. shall collect the full sum of $2,000 on the mortgage when it falls due, and shall pay the balance over what he had actually paid to B. and which is $600 when the money is so collected, and gives to B. a written obligation binding himself to pay the said sum of $600 and to collect the same, and the land is afterwards sold by C. to subsequent grantees, who specifically agree to assume and pay the said mortgage, A. may, on foreclosure of the mortgage against the last grantee, collect the full sum of the said mortgage note, namely, $2,000.

A cotenant will not be allowed to assert ignorance of the terms of a deed by which he, together with his co-tenant, assumes and agrees to pay a mortgage debt on the land on the ground that the deed was not delivered to him but to his cotenant, and he has had no knowledge of its terms and his cotenant had no authority to agree to such assumption when, with full knowledge of the fact that the same had been received and had been recorded he remains in the possession of the premises, together with his cotenant, for nearly three years without questioning the terms of the deed or the authority of his cotenant to receive the same, and himself pays interest on the indebtedness secured by the mortgage which was so assumed during such time.

Appeal from District Court, Burleigh County; Nuessle, Judge.

Action by Walter A. McDonald against M. B. Finseth and others. From a judgment for plaintiff, the defendant named appeals. Affirmed.

This is an action for the foreclosure of a mortgage and for a deficiency decree, and comes before us for a trial de novo after judgment being rendered in the trial court in favor of the plaintiff. The question at issue is whether the defendant M. B. Finseth assumed the mortgage and, even if he did, whether the present plaintiff, Walter A. McDonald, can hold him personally liable for the deficiency decreed against him. The mortgage which the plaintiff seeks to foreclose was executed on January 31, 1910, by one Charles H. Woodbury and wife, and was given to secure a note of the face value of $2,000. It appears, however, that the amount which was actually paid to the Woodburys was only $1,400, the explanation for this transaction being that at the time of the loan McDonald did not have the full $2,000, and paid the Woodburys only $1,400; that shortly thereafter, and on March 4, 1911, and before the payment of the balance, the Woodburys transferred the property to one Ernest Engel, and that it was therefore agreed that McDonald should collect the whole $2,000, and after he had collected the same should pay the $600 to them, the plaintiff testifying that he had executed an obligation which bound him to pay this balance and to collect the amount. This deed from the Woodburys to Ernest Engel was for a recited consideration of $10,525. There was in it no mention of the plaintiff's mortgage, except a covenant that “the premises are free from all incumbrances excepting a mortgage of $2,000.00 to Walter A. McDonald.” There was no specific agreement to pay the mortgage on the part of the grantee, and there were the usual covenants of title and of quiet possession. No parol evidence was introduced on the trial to show any oral or collateral agreement to pay this mortgage or to show that its payment constituted part of the purchase price. Later and on March 27, 1911, Engel and his wife executed a deed of the premises for the alleged consideration of $10,500 to C. H. Langley and E. J. Langley. This deed contained the provision that:

“The premises are free from all incumbrances except a mortgage for $2,000.00 which second parties [the Langleys] assume and agree to pay with accrued interest from February 1, 1911.”

Later, and on June 1, 1911, the Langleys executed a warranty deed of the premises for the recited consideration of $10,500 to the defendant and appellant, M. B. Finseth, and to H. A. Hallum. This deed contained in the covenant against incumbrances the following clause:

“That the premises are free from all incumbrances except a mortgage for $2,000.00 which second parties [Finseth and Hallum] agree to pay with accrued interest from February 1, 1911.”

It appears that this deed was delivered only to the grantee Hallum, and that appellant, Finseth, did not actually know of the assumption clause contained therein until later, when he found it upon the records of Burleigh county. The trial court found the amount due upon the indebtedness to the plaintiff, McDonald, to be the sum of $2,350, with interest at 10 per cent. from January 31, 1913, and the mortgage, containing the usual deficiency clause, adjudged and decreed that:

“In case the property shall not bring a sum sufficient on the sale thereof to pay the entire debt, interest and taxes, that the plaintiff shall have and recover a deficiency judgment against the defendant, M. B. Finseth, if any there be.”

From this judgment plaintiff has appealed, and asks for a trial de novo. His contention is: First, that there was no privity of contract between himself and the mortgagee, McDonald, and therefore no assumption of the mortgage by him; second, that the mortgagee, McDonald, only paid to the Woodburys, the original mortgagors, the sum of $1,400, and that in no case can he be held liable for the difference between the sum of $1,400 and $2,000 which the mortgage ostensibly secured. He argues that his liability can only be founded on the assumption clause in the deed to him from the Langleys; that the covenants of the Woodburys, the original mortgagors and grantors, to Ernest Engel only stated that the land was free from all incumbrances excepting a mortgage of $2,000 to W. A. McDonald; that this was merely a limitation upon the covenant of title and quiet possession made by the grantor, and in no way constituted an assumption of the mortgage or an agreement to pay the same by the grantee, Engel, and that there is, in the record even, no evidence that the amount of the mortgage was deducted from the purchase price and entered into the consideration for the transfer.

S. E. Ellsworth, of Jamestown, and F. H. Register, of Bismarck, for appellant. M. C. Freerks, of Jamestown, for respondents.

BRUCE, J. (after stating the facts as above).

[1][2] There is a decided conflict in the authorities upon the question which is before us, and some courts hold to the rule that the grantee of mortgaged premises who purchases subject to a mortgage which he assumes and agrees to pay will not be liable for a deficiency arising on a foreclosure and sale unless his grantor is also liable legally and equitably for the payment of the mortgage, and that if there is a break anywhere in the chain of liability, all of the subsequent purchasers are without obligation in so far as the mortgagee is concerned, and that the promise of the last grantee only operates as an indemnity to his immediate grantor. See dissenting opinion in McKay v. Ward, 20 Utah, 149, 57 Pac. 1024, 46 L. R. A. 623;Fry v. Ausman, 29 S. D. 30, 135 N. W. 710;Brown v. Stillman, 43 Minn. 126, 45 N. W. 2;Nelson v. Rogers, 47 Minn. 103, 49 N. W. 526;Vrooman v. Turner, 69 N. Y. 284, 25 Am. Rep. 195;King v. Whitely, 10 Paige (N. Y.) 465;Morris v. Mix, 4 Kan. App. 654, 46 Pac. 58;N. E. Trust Co. v. Nash, 5 Kan. App. 739, 46 Pac. 987;Skinner v. Mitchell, 5 Kan. App. 366, 48 Pac. 450;Ward v. De Oca, 120 Cal. 102, 52 Pac. 130;Biddel v. Brizzolara, 64 Cal. 354, 30 Pac. 609;Y. M. C. A. v. Croft, 34 Or. 106, 55 Pac. 439, 75 Am. St. Rep. 568;Eakin v. Shultz, 61 N. J. Eq. 156, 47 Atl. 274;Norwood v. De Hart, 30 N. J. Eq. 412;Wise v. Fuller, 29 N. J. Eq. 257;Crone v. Stinde, 156 Mo. 262, 55 S. W. 863, 56 S. W. 907;Goodenough v. Labrie, 206 Mass. 599, 92 N. E. 807, 138 Am. St. Rep. 411;Hicks v. Hamilton, 144 Mo. 495, 46 S. W. 432, 66 Am. St. Rep. 431;Willard v. Wood, 135 U. S. 309, 10 Sup. Ct. 831, 34 L. Ed. 210; Wiltsie Mortg. Foreclosure, § 227; 9 Enc. Pl. & Pr. 469.

If we adopt this rule, it is perfectly clear that the trial court erred in rendering judgment for the plaintiff and respondent, and that such judgment should be reversed; for, although it is perfectly clear from the record that in the deed from the Langleys to Finseth, Finseth assumed and agreed to pay the mortgage, and that in the deed from Engel to the Langleys, the Langleys also agreed to pay the mortgage, it is not clear that in the deed from the Woodburys to Engel, Engel made any such agreement or assumption; that the chain was therefore broken, and according to the authorities cited there would be no privity of contract between the mortgagee, McDonald, and the defendant M. B. Finseth. We believe, however, that the cases mentioned are unsound in principle, and prefer to follow the other line of authorities which appear to us to express the better rule. The cases cited by counsel for appellant, indeed, seem to totally ignore, in their conclusions at any rate, even if not in their reasoning, the well-established rule...