Merchants' Nat. Bank of Clinton v. Austin

• Decision Date: 28 May 1918
• Docket Number: No. 2108.,2108.
• Citation: 175 P. 781,24 N.M. 598
• Parties: MERCHANTS' NAT. BANK OF CLINTON, IOWA,v.OTERO et al.SAMEv.AUSTIN et al.
• Court: New Mexico Supreme Court

24 N.M. 598

175 P. 781

MERCHANTS' NAT. BANK OF CLINTON, IOWA,

v.OTERO et al.SAME

v.AUSTIN et al.

No. 2108.

Supreme Court of New Mexico.

May 28, 1918.On Motion for Rehearing, June 13, 1918.

Syllabus by the Court.

The covenant of good right to convey is in praesenti, and, if broken at all, is broken when made. A cause of action thereon does not pass to a subsequent grantee merely by force of the deed of conveyance.

The covenant of warranty is a real covenant, running with the land until the same is broken, whereupon a cause of action arises in favor of the covenantee. After breach it has no existence save for the purpose of supporting a right of action for damages on the part of him who held it at the time of the breach.

[Ed. Note.-For other definitions, see Words and Phrases, First and Second Series, Covenant of Warranty.]

Where a deed is taken in the name of one acting for himself and another, the latter is one of the real parties in interest, and may maintain an action on such deed for breach of warranty and good right to convey, the same as the named grantee may do.

The measure of damages on the covenant of warranty, in case of a partial eviction, is such part of the original price as bears the same ratio to the whole consideration that the value of the land to which the title has failed bears to the value of the whole tract conveyed.

Additional Syllabus by Editorial Staff.

On Motion for Rehearing.

The general rule is that the purchase price is the limit of recovery upon breach of a covenant of warranty, whether the breach is total or partial.

On breach of warranty the value of the whole estate as compared to the value of the part lost by failure of title is not to be conclusively presumed to be the price fixed by the parties at the time of the conveyance.

Under the rule that on breach of a warranty the damages will bear the same proportion to the whole consideration paid as the value of the part to which title fails bears to the value of the whole tract, the word “value” means actual value and not that fixed by the parties.

[Ed. Note.-For other definitions, see Words and Phrases, First and Second Series, Value.]

In an action for breach of a warranty the contention that the price agreed between the parties at time of conveyance and recited in the deed is some evidence of the actual value of the property at that time, which, in the absence of contrary proof, will be sufficient evidence thereof, is not sound.

The general rule is that the burden in action for damages for breach of a warranty is upon the plaintiff.

Appeal from District Court, Guadalupe County; Leahy, Judge.

Action on note and mortgage by the Merchants' National Bank of Clinton, Iowa, against the Lagunita Live Stock Company, the Salado Live Stock Company, J. J. Jaffa, trustee, and Miguel A. Otero, with answers by the Salado Live Stock Company and defendant Otero, seeking affirmative relief, combined with action by same plaintiff against Edward A. Austin and others. Judgment for defendants, and plaintiff appeals. Reversed and remanded for new trial.

Under the rule that on breach of a warranty the damages will bear the same proportion to the whole consideration paid as the value of the part to which title fails bears to the value of the whole tract, the word “value” means actual value and not that fixed by the parties.

E. R. Wright, of Santa Fé, for appellant.

S. B. Davis, Jr., and C. W. G. Ward, both of East Las Vegas, for appellees.

PARKER, J.

This is an appeal from the district court for the county of Guadalupe, by the Merchants' National Bank of Clinton, Iowa, from a judgment rendered against it in an action by it upon a note and to foreclose a mortgage.

On August 27, 1903, the appellant made, executed, and delivered to Edward G. Austin its deed for 874.02 acres of land, more or less, situated in Guadalupe county. This land was comprised of nine contiguous tracts. The deed recited that the intention was to convey an absolute title in fee to said real estate, including any right of homestead therein, and contained a covenant of warranty, and that the grantor had full right, power, and authority to sell the same as well as a covenant against incumbrances. On the same day, in order to secure the payment of a promissory note for $1,700, executed by the said grantee and Miguel A. Otero and James W. Raynolds, and delivered to the grantor, and representing a portion of the unpaid purchase price of said real estate, the said grantee executed and delivered to the appellant a mortgage on said property. The note was made payable on or before five years from date, and provided for interest at the rate of six per cent. per annum from date until paid. The note was dated September 1, 1903.

On September 2, 1903, Austin deeded the premises to Otero and Raynolds. On January 3, 1908, Otero and Raynolds deeded the same to the Lagunita Live Stock Company, and on November 3, 1911, the latter deeded the same to the Salado Live Stock Company. It is admitted that the latter holds the title to said premises, except as to 160 acres thereof, title to which failed. It is also admitted that at the time the appellant conveyed said premises by deed to Austin that it had no title to 160 acres of said land, the same then and since being vested in parties not in privity with the appellant.

The two live stock companies and J. J. Jaffa, trustee, were made parties defendant upon the allegation that they claimed to have some interest in the premises. The Salado Live Stock Company and Jaffa, trustee, answered, setting up the title to which reference has heretofore been made, and alleging that title to the 160-acre tract failed, because appellant was not vested with title thereto at the time it pretended to convey the same to Austin; that the note was without consideration and void; that appellant refuses to warrant and defend title to said last-mentioned tract; and that the same is of the reasonable value of $4,000, which sum it asks as damages against the appellant.

The answer of Otero, in substance and effect, alleged that, in the purchase of said real estate from the appellant, Austin acted for himself and for Otero, the appellant having knowledge thereof, and that title to the 160-acre tract failed, because the same was and since has been, in two designated persons; that consideration for said note failed; that by operation of law the appellant, by virtue of its said deed, covenanted that at the time of the execution of said deed it possessed an irrevocable possession in fee simple to said property, which was untrue as to the 160-acre tract; and that the reasonable value of said tract is $4,000, damages therefor being prayed. A reply admitting and denying certain matter in said answers was filed by the appellant. A stipulation was also filed by the parties, settling most of the facts in the case.

[1] (1) Neither Otero nor the Salado Live Stock Company acquired any cause of action against the appellant on its covenant of good right to convey, in so far at least as the rights of those parties as intermediate and remote grantees are concerned. The covenant is in praesenti and universally regarded as personal. If broken at all it is broken when made, and a cause of action thereupon instantly arises in favor of the covenantee, which does not pass to his grantee merely by virtue of the deed of conveyance. 4 Elliott on Contracts, § 3887; 7 R. C. L. “Covenants,” §§ 29 and 36; 2 Devlin on Deeds (3d Ed.) § 942.

[2] (2) Nor did either Otero or the Salado Live Stock Company, as intermediate and remote grantees, acquire a cause of action against the appellant for breach of its covenant of warranty contained in its deed of said premises to Austin. This covenant runs with the land, and inures to the benefit of subsequent grantees, so long as no breach thereof has occurred. The instant a breach of covenant has occurred a chose in action arises in favor of the evicted person, or the one claiming the right and title to the land, and who is in privity with the covenantor, and this chose in action is not transferred or assigned simply by virtue of a deed of conveyance. In 3 Washburn on Real Property, § 2386, it is said:

“The broadest and most effective of the covenants contained in American deeds is that of warranty, which is, in some states, the only one in general use. It is future in its terms and operation, and runs with the estate, in respect to which it is made, into the hands of whoever becomes the owner of such estate. But, if once broken by an eviction, the covenant of warranty stands upon the same ground as the covenants which are broken as soon as made.”

See, also, section 2394 of the same work; 7 R. C. L. “Covenants,” § 56; 11 Cyc. 1096, 1097, 1138.

In Prestwood v. McGowin, 128 Ala. 267, 275, 29 South. 386, 389, 86 Am. St. Rep. 136, 140, it was said:

“‘If at the time of the conveyance the grantor had neither title nor seisin, nothing passed by the deed, and the covenant remains with the grantee and cannot be enforced by an assignee. *** The assignee in possession at the time of the breach is generally the only person who can maintain an action upon the covenant.’ Tiedeman on Real Prop. § 860.”

See, also, Bull v. Beiseker, 16 N. D. 290, 113 N. W. 870, 14 L. R. A. (N. S.) 514, and note, Davidson v. Cox, 10 Neb. 150, 4 N. W. 1035, and McConaughey v. Bennett's Executors, 50 W. Va. 172, 40 S. E. 540. In the case last cited it was held:

“After breach of such covenant it can no longer run with the land, nor has it any existence or virtue, save for the purpose of supporting a right of action for damages on the part of him who held it at the time of the breach, against the covenantor.”

In the case at bar it is admitted that the appellant breached its covenant of warranty at the time it executed the conveyance to Austin, it having no legal title nor possession in and to a portion of the lands it attempted to convey. It will therefore be unnecessary to discuss...