Slottow v. Hull Inv. Co.

• Decision Date: 23 July 1930
• Parties: SLOTTOW v. HULL INV. CO.
• Court: Florida Supreme Court

129 So. 577

100 Fla. 244

SLOTTOW v. HULL INV. CO.

Florida Supreme Court, Division B.

July 23, 1930

Error to Circuit Court, Polk County; H. C. Petteway, Judge.

Action by the Hull Investment Company against Joseph G. Slottow, as ancillary administrator of the estate of Ferdinand Becker deceased. Judgment for plaintiff, and defendant brings error.

Affirmed.

COUNSEL

Callaway & Burruss, of Lakeland, and Slottow &amp Leviton, of Chicago, Ill., for plaintiff in error.

McKay Withers & Ramsey, of Tampa, and Edwards & Cutts and Norman S. Stone, all of Lakeland, for defendant in error.

OPINION

STRUM J.

Ferdinand Becker, now deceased, executed a series of promissory notes dated September 15, 1925, payable to the order of Hull Investment Company, plaintiff below. Payment of these notes was secured by a mortgage on real estate, also executed by Ferdinand Becker, in the conventional form. Interest was payable on the notes semiannually, and the mortgage contained the usual acceleration clause providing that the mortgagee, at its option, might declare the entire principal sum due upon failure of the debtor to pay the interest within thirty days after it became due.

Thereafter Becker conveyed the mortgaged land to Hugh White, who in turn conveyed the same to H. A. Stahl and associates. Each of the grantees expressly assumed and agreed to pay the indebtedness secured by the mortgage.

The principal of one of the notes of said series became due on September 15, 1926, and, not being paid, the payee, on December 23, 1926, instituted an action at law upon that note. The principal of another of said notes became due on September 15, 1927. That note not having been paid, the payee on June 21, 1928, instituted its action at law thereon. Pleas were filed in both actions, to which demurrers were ultimately sustained, and final judgment upon demurrer was entered in favor of the plaintiff in both actions. Both judgments are now before us upon writ of error, and, as the same contentions are raised in each case, they will here be disposed of together.

The defense interposed by the defendant Becker, and now by his administrator, is that, upon the sale of the mortgaged land and the assumption of the mortgage debt by the grantee, the last grantees became the principal debtors, and the original mortgagor, Becker, a mere surety, and that the mortgagee, the plaintiff in these actions, recognized the last grantees as principal debtors by dealing directly with them in granting an extension of time for payment of the mortgage debt, without Becker's consent, thereby discharging Becker as surety from further personal liability.

The transaction between the mortgagee and the last grantees upon which Becker's claim of discharge rests is alleged in the pleas to be, in substance, as follows:

Semiannual interest became due on the notes on March 15, 1926, and was not paid. Thereafter the mortgagee elected to declare the entire sum due, and commenced foreclosure. On May 21, 1926, a purported agreement was executed between the mortgagee, Hull Investment Company, and some of the last grantees, referred to as Stahl and associates, whereby said grantees agreed to pay the past-due interest, and further agreed to properly cultivate the mortgaged land, which consisted of an orange grove, by pruning, spraying, and fertilizing the same, failing in which the mortgagee at its option might enter the property for the purposes just stated, and any amount expended by the mortgagee for those purposes should constitute a lien on the property. The mortgagee agreed 'to discontinue the foreclosure action which it had started' on the mortgage above referred to. The said mortgagee agreed to do nothing more, so far as the terms of the instrument relied on by the defendant disclose. Becker alleges in his pleas that the mortgagee gave him no notice of its election to accelerate the due date of the principal, but that notice was given only to Stahl and associates, the last grantees. The pleas allege that the mortgagee, Hull Investment Company, agreed that it 'would so extend the said indebtedness as to bring about its maturity on the same dates theretofore provided for in the notes and mortgage, and providing for an earlier maturity under certain conditions not originally set forth in said mortgage,' but the agreement which is attached to and made a part of the pleas contradicts that averment and discloses that the mortgagee promised only 'to discontinue the foreclosure action which it had started on' the mortgage in question. The pleas further allege that at the time the Hull Investment Company 'extended' the time of payment in manner aforesaid, the mortgaged land was of sufficient value to discharge the entire indebtedness, but that it had since depreciated in value so as to be insufficient for that purpose. The contention of the defendant is that the transaction just described between the mortgagee and the last grantees was a recognition by the mortgagee of the status of surety on the part of Becker, the original mortgagor, and the acceptance of the last grantees, Stahl and associates, as principal debtors, and that the dealings between the mortgagee and the last grantees amounted to such an extension of time of payment as would discharge Becker as surety, he not having assented thereto.

It is now well established that a grantee who purchases mortgaged land from the mortgagor and assumes and agrees to pay the mortgage thereon becomes, as to the mortgagor, the principal debtor, and the mortgagor a surety. Brownson v. Hannah, 93 Fla. 223, 111 So. 731, 51 A. L. R. 976; Ackley v. Noggle, 97 Fla. 640, 121 So. 882; 2 Jones on Mortgages (8th Ed.) § 920. See, also, Gilliam v. McLemore, 141 Miss. 253, 106 So. 99, 43 A. L. R. 79, and note 21 A. L. R. 504.

There is, however, a marked diversity of judicial opinion as to the effect upon the rights of the mortgagee of the relation thus created between the mortgagor and his grantee. By some courts it is held that the relation is binding upon the mortgagee from its inception. Other courts take the view that the mortgagee is not affected in any event, even though the latter disregards the mortgagor in subsequent dealings with the grantee.

The doctrine which commends itself to us as sanctioned by reason as well as by the present weight of authority lies between the two extremes just stated. For one reason or another, the courts are gradually uniting upon the doctrine, which we here adopt, that the relation of principal and surety between the mortgagor and his grantee, created in the manner above stated, does not in and of itself involve the mortgagee in its legal effects. His rights remain unchanged, unless by his voluntary agreement, or by his dealings with the grantee, the mortgagee in effect accepts the grantee alone as the principal debtor or estops himself to further assert a personal liability against the mortgagor. Until the mortgagee thus recognizes the grantee alone as the principal debtor, the mortgagee may treat both the mortgagor and the latter's grantee as principal debtors, and may have a personal decree against both or either, the obligation of the grantee being an additional obligation of which the mortgagee may avail himself or not, at his election. The mortgagee may sue the mortgagor alone, or may accept the grantee's assumption of the debt and may bring his action against the latter. Realty Holding Corp. v. Noggle, 97 Fla. 643, 121 So. 883, was such a case, the mortgagee suing the grantee at law. The trial court sustained a demurrer to the declaration, which order was reversed by this court, without opinion, upon authority of Ackley v. Noggle, 97 Fla. 640, 121 So. 882. See also Lowry v. Hensal, 281 Pa. 572, 127 A. 219; Note 21 A. L. R. 403-531; 41 C.J. 743, 750; 19 R. C. L. 374; Tuttle v. Jockmus, 106 Conn. 683, 138 A. 804.

The sale of the mortgaged property is a transaction wholly between the mortgagor and his vendee, solely for their advantage. The mortgagee has no voice in its making, and is powerless to prevent it. The agreement of assumption between the mortgagor and his vendee is, as to the mortgagee, res inter alios acta. The mortgagee, therefore, is not bound by a contract to which he is not a party. Moreover, a primary debtor is not converted into a surety and his liability altered to conform to the latter status, by the mere promise of a third party to pay the debt, a transaction to which the creditor is not a party. To the creditor such a transaction is cumulative, rather than substitutional. A mortgagor cannot thus compel his creditor to accept a substituted primary debtor, or to release any security he already holds. There can be no change in the relation between mortgagor and mortgagee, which can affect the mortgagee's rights, without the assent of the latter, express or implied. The mortgagee need not recognize the vendee unless he so elects. He need surrender no rights against the mortgagor unless he so elects.

By his dealings with the grantee, however, the mortgagee may recognize the grantee alone as the principal debtor, and thereby preclude himself from securing a personal judgment against the mortgagor. Even though the mortgagee is not contractually bound by the contract of assumption between the mortgagor and his grantee, it by no means follows that the mortgagee, after learning thereof, may enter into new or inconsistent relations with the grantee in disregard of the rights of the mortgagor. The mortgagee may enforce his rights as they originally exist, but if, with knowledge of the relationship between the mortgagor and his grantee, the mortgagee enters into a new contract with the grantee which materially varies the original obligation, he must respect the relation which he knows to exist...