Prudential Ins. Co. of America v. Bass

• Decision Date: 20 June 1934
• Docket Number: No. 22467.,22467.
• Citation: 191 N.E. 284,357 Ill. 72
• Parties: PRUDENTIAL INS. CO. OF AMERICA v. BASS et al.
• Court: Illinois Supreme Court

357 Ill. 72

191 N.E. 284

PRUDENTIAL INS. CO. OF AMERICA

v.BASS et al.

No. 22467.

Supreme Court of Illinois.

June 20, 1934.

Suit by the Prudential Insurance Company of America against Arthur S. Bass, his wife, and others.From a judgment of the Appellate Court(274 Ill. App. 76) affirming a mortgage foreclosure decree exonerating defendants from personal liability, complainant appeals.

Affirmed.

Appeal from Appellate Court, Third District, on Appeal from Circuit Court, Pike County; A. Clay Williams, Judge.

George E. Drach, of Springfield, for appellant.

Rearick & Rearick, of Danville, for appellees.

JONES, Chief Justice.

On December 10, 1921, Arthur S. Bass and wife, Jennie E. Bass, delivered to the Prudential Insurance Company of America a promissory note for $22,000 and secured it by executing a real estate mortgage on certain lands in Pike county.The note was due five years after date, with 6 per cent. interest per annum, payable semiannually, with the privilege of paying multiples of $100, but not exceeding one-fifth of the principal during any one year, at any interest-paying date.Bass and wife conveyed the premises by warranty deed to Harry E. Buckles and C. R. Hawkins on October 26, 1924.The deed recited that the grantees assumed and agreed to pay said note and interest from March 1, 1924, as part of the purchase price.The grantees went into possession of the premises, and the mortgagors made no further payments on the debt or of taxes and assessments on the premises.When the note became due, it was not paid, but on December 29, 1926, the grantees, with their wives joining, entered into an extension agreementwith the insurance company whereby Buckles and Hawkins agreed to pay the principal on December 10, 1931.Interest was reduced to 5 per cent. per annum, and privilege was given to pay any multiple of $100 on the principal at any interest-paying date.It was expressly provided that the note and mortgage were to remain in force except as so modified.Appellees never consented, expressly or otherwise, to the extension agreement, and had no knowledge of it until December 30, 1931.The owners of the land defaulted in the payment of a portion of the interest due June 30, 1931, and of all the interest due December 30, 1931.This insurance company was required to make advances for certain taxes, drainage assessments, and insurance premiums during those years, and had not been reimbursed for its outlay.Proceedings for foreclosure were instituted by the company in the circuit court of Pike county, and the original mortgagors and their grantees were made partiesdefendant.The bill of complaint prayed for a personal decree against each of them.The chancellor found that appellees were released from personal liability because the extension agreement was made without their knowledge or consent.A decree of foreclosure was entered which exonerated appellees from personal liability.The Appellate Court for the Third district affirmed the decree, and the cause is here through a certificate of importance and appeal to this court.

The only question presented is whether or not the extension agreement had the legal effect of discharging appellees from personal liability for the debt.It is the position of appellant that, when a mortgagor conveys the mortgaged premises to a grantee who assumes and agrees to pay the debt, the grantee becomes the principal and the mortgagor becomes a surety, but the mortgagee is not bound to the relationship unless he agrees to it, either expressly or by tacit consent.Such is the law, but, where the mortgagee knows of the relationship which has thus arisen between the other parties, he is bound to respect it and do nothing to disturb the legal obligations which are the result of it.If he chooses, he may look only to the mortgagor for payment, or he may look only to the purchaser, or he may look to both.Furthermore, he may release the surety in that relationship either by agreement or by doing some act which has the legal effect of discharging the surety.In such event, he can look only to the principal (the grantee) for the payment of the obligation.

In Pomeroy's Equity Jurisprudence (4th Ed. vol. 3, § 1206), the rule in such a case as this is stated as follows: ‘When a grantee thus assumes payment of the mortgage debt as a part of the purchase price, the land in his hands is not only made the primary fund for payment of the debt but he himself becomes personally liable therefor to the mortgagee or other holder of the mortgage.The assumption produces its most important effect by the operation of equitable principles upon the relations subsisting between the mortgagor, the grantee and the mortgagee.As between the mortgagor and the grantee, the grantee becomes the principal debtor, primarily liable for the debt, and the mortgagor becomes the surety, with all the consequences flowing from the relation of suretyship.As between these two and the mortgagee, although he may treat them both as debtors and may enforce the liability against either, still, after receiving notice of the assumption, he is bound to recognize the condition of suretyship and to respect the rights of the surety in all his subsequent dealings with them.* * * While the mortgagee may release the mortgage without discharging the grantee, his release of the grantee, or his valid extension of the time of payment to the grantee without the mortgagor's consent, would operate to discharge the mortgagor.’

This rule is well established.While the courts of a few jurisdictions have held contrary views, a large majority of them have adopted the principles announced in the foregoing rule.The reason for the rule is, that the mortgagor on paying...