Security Bank of Minnesota v. Holmes

• Decision Date: 17 July 1896
• Docket Number: 9946--(238)
• Parties: SECURITY BANK OF MINNESOTA v. WILLIS J. HOLMES and Another
• Court: Minnesota Supreme Court

68 N.W. 113

65 Minn. 531

SECURITY BANK OF MINNESOTA v. WILLIS J. HOLMES and Another

Nos. 9946--(238)

Supreme Court of Minnesota

July 17, 1896

Appeal by plaintiff from an order of the district court for St Louis county, Moer, J., sustaining a demurrer to the complaint. Reversed.

Cobb & Wheelwright, for appellant.

Covenants of seisin and against incumbrances in most states are held to be covenants in praesenti, and do not run with the land. In Maine, Colorado, and Georgia statutes declare that the covenants against incumbrances shall run with the land, and vest in the assigns of the covenantee. The same result has been obtained in New York, Ohio, Minnesota, and other states by establishing a rule that every action must be prosecuted in the name of the real party in interest. Rawle, Cov. Title § 211; 19 Am. & Eng. Enc. Law, 1008. See Gen. St. 1883 Colo. § 207; 1 Codes & Statutes Cal. (Hittell, 1876) §§ 6460-6467. This court has held that the covenants of seisin and against incumbrances run with the land. Kimball v. Bryant, 25 Minn. 496; Hawthorne v. City Bank, 34 Minn. 382, 26 N.W. 4. In the following cases it has been held that the covenant against incumbrances runs with the land, and can be enforced by a remote grantee. Knadler v. Sharp, 36 Iowa 232; M'Crady v. Brisbane, 1 Nott & McC. 104; Sprague v. Baker, 17 Mass. 585; Cole v. Kimball, 52 Vt. 639; Richard v. Bent, 59 Ill. 38; Post v. Campau, 42 Mich. 90, 3 N.W. 272; Foote v. Burnet, 10 Ohio 317, 332; Colby v. Osgood, 29 Barb. 339; Roberts v. Levy, 3 Abb. Pr. (N. S.) 311; Ernst v. Parsons, 54 How. Pr. 163; Andrews v. Appel, 22 Hun, 429; Dickson & Gantt v. Desire, 23 Mo. 151, 163; Walker v. Deaver, 79 Mo. 664, 675; Taylor v. Priest, 21 Mo.App. 685; Martin v. Baker, 5 Blackf. 232. The liability under a covenant in a mortgage is the same as if the covenant were in a deed. Rawle, Cov. Title, § 26; Tefft v. Munson, 57 N.Y. 97; Jackson v. Little, 56 N.Y. 108; Thomas, Mortg. § 27; Ayer v. Philadelphia & B. F. B. Co., 157 Mass. 57, 31 N.E. 717; Sandwich Mnfg. Co. v. Zellmer, 48 Minn. 408, 51 N.W. 379; Butler v. Seward, 10 Allen, 466.

The liability for breach of covenant against incumbrances continues after foreclosure. It makes no difference whether the purchaser be the mortgagee or a stranger, for the benefits of covenants for title pass to the purchaser at judicial sales. American B. & L. Assn. v. Waleen, 52 Minn. 23, 53 N.W. 867; Lawton v. St. Paul P. L. Co., 56 Minn. 353, 57 N.W. 1061; Jackson v. Littell, 56 N.Y. 108; Devin v. Hendershott, 32 Iowa 192.

Washburn, Lewis & Judson, for respondents.

A covenant against incumbrances does not run with the land. Kimball v. Bryant, 25 Minn. 496; Rawle, Cov. § 70; Andrews v. Davison, 17 N.H. 413, 43 Am. Dec. 606; Funk v. Voneida, 11 S. & R. 109, 14 Am. Dec. 617; Jones v. Warner, 81 Ill. 343; Allen v. Kennedy, 91 Mo. 324, 2 S.W. 142.

A purchaser at foreclosure sale is presumed to know the condition of the title, and to bid at his own risk; and if the title be doubtful, he can have it examined, and refuse to accept it, if defective. Jones, Mortg. § 1646; Pingrey, Mortg. § 1960; American B. & L. Assn. v. Waleen, 52 Minn. 23, 53 N.W. 867; Norton v. Taylor, 35 Neb. 466, 53 N.W. 481; Bishop v. O'Connor, 69 Ill. 431; Roberts v. Hughes, 81 Ill. 130; Hanger v. State, 27 Ark. 667; McMurry v. Brasfield, 10 Heisk. (Tenn.) 529; Boggs v. Fowler, 16 Cal. 560; Jackson v. Littell, 56 N.Y. 108; Riggs v. Purcell, 66 N.Y. 193; Graham v. Bleakie, 2 Daly, 55.

Covenants in a mortgage are security for the debt, and not for the title. The broken covenants in a mortgage do not pass to the purchaser at foreclosure, but are wholly for the benefit of the mortgagee; and whatever right of action there may be remains in the mortgagee as security for any deficiency upon his debt after foreclosure, and does not pass to the purchaser. Jones, Mortg. § 68; Todd v. Johnson, 51 Iowa 192, 1 N.W. 498; Corbin v. Reed, 43 Iowa 459.

OPINION

START, C. J.

The defendants, on August 31, 1889, executed and delivered to the W. B. Clark Investment Company a mortgage containing the usual covenants, including one against incumbrances, on certain real estate in the city of Fergus Falls in this state. On March 19, 1890, this mortgage was duly assigned to the plaintiff, and was afterwards foreclosed by action, and the premises sold to the plaintiff, and on January 31, 1893, a final decree was entered in the action vesting the title thereto in the plaintiff. At the time this mortgage was executed by the defendants, the premises therein described were incumbered by a prior mortgage in the sum of $ 2,500, and further by a certain party-wall contract. See First Nat. Bank v. Security Bank of Minnesota, 61 Minn. 25, 63 N.W. 264. The plaintiff paid and discharged the prior incumbrances, and brings this action on such covenant against incumbrances to recover from the defendants the amount so paid. The complaint duly alleged in detail the foregoing facts, to which the defendants demurred on the ground that it did not state facts sufficient to constitute a cause of action. The plaintiff appeals from an order sustaining the demurrer.

1. The first question presented by the record for our decision is, does a covenant against incumbrances run with the land? It is held by many of the courts in this country that of the five usual covenants in a deed of real estate, three of them -- seisin, right to convey, and that the land is free from incumbrances -- are personal covenants, and do not run with the land, for, if not true, there is a breach of them as soon as made, and they become choses in action, which are not technically assignable. After stating this rule, Chancellor Kent adds:

"It is, however, to be regretted that the technical scruple that a chose in action was not assignable does necessarily prevent the assignee from availing himself of any or of all the covenants. He is the most interested and the most fit person to claim the indemnity secured by them, for the compensation belongs to him as the last purchaser and the first sufferer."

4 Kent, Comm. 472.

This "technical scruple" has no force in this state, where choses in action are assignable; hence, on principle, there is no reason why we should not hold that the last purchaser and the first sufferer -- that is, he who pays the prior incumbrance -- is entitled to the benefit of the covenant, and to the right of maintaining an action thereon in his own name.

Where the incumbrance, as in this case, can be discharged by the payment of a definite sum of money, there is only a technical breach of the covenant, and a right to only nominal damages therefor until the owner of the land pays the amount of the incumbrance, when the right to recover substantial damages first accrues for the first substantial breach of the covenant. Justice then requires that the owner of the land (whether he is the original covenantee or a remote grantee against whose land the incumbrance is first attempted to be enforced), who pays it, should have the benefit of the covenant which was made and taken for the protection and assurance of the title, which the covenantor assumed by his deed to pass to the covenantee.

It is immaterial whether we say that a covenant against an incumbrance which is a money charge on the land runs with the land, or that the cause of action for a breach of the covenant is assignable, and passes by deed to the grantee of the covenantee, immediate or remote, who sustains injury by reason of the incumbrance; for in either case we reach the same result. The covenant, which is one of indemnity, in effect attaches itself to the title assumed to be conveyed by the deed, and accompanies it for the protection of the covenantee or any of his assigns who may finally be injured by the incumbrance. In short, for all practical purposes, a covenant against incumbrances which are a money charge on the land runs with the land until they are discharged. Kimball v. Bryant, 25 Minn. 496. In that case the covenant was one of seisin, but the reason upon which the decision was based applies with greater force to the covenant against incumbrances, and establishes for this state the rule that an action on such covenant can be maintained by an assignee of the covenantee. Hawthorne v. City Bank, 34 Minn. 382, 26 N.W. 4. See further, on this question, Cole v. Kimball, 52 Vt. 639; Post v. Campau, 42 Mich. 90, 3 N.W. 272; Knadler v. Sharp, 36 Iowa 232.

2. It is, however, claimed in behalf of the defendants that, whatever the rule may be where the covenant is in a deed, and the title passes by deed to the remote grantee of the covenantee, no right of action upon the covenant contained in a mortgage passes at a foreclosure sale to the purchaser.

In support of this claim coun...