Federal Land Bank of Columbia v. Whitehurst

Clarkson, J. The questions presented on this appeal: (1) When defendant, answering complaint for foreclosure of a mortgage, admits execution of note and mortgage by the original mortgagor, and purchase of land from mortgagor and assumption of the debt and mortgage by him, and default in payment, is his plea of subsequent conveyance by him to another who assumed the mortgage, and failure of the mortgagee to collect installments of the debt and taxes and to give him notice of the defaults and to prevent waste on the land a valid defense in bar of plaintiff's recovery of judgment against him or valid ground for a counterclaim? (2) Is defendant’s allegation of ownership of stock certificate, redeemable on payment of the mortgage debt, sufficient to constitute a valid counterclaim against plaintiff, it not being alleged by whom the stock was issued or by whom it is redeemable or that the debt has been paid? We think that both questions must be answered in the negative. This Court in Rector v. Lyda, 180 N. C., at p. 578, citing numerous authorities, speaking to the subject, says: “The authorities thus state the old and the new rule. The doctrine of equity is that when the grantee in a deed assumes the payment of the mortgage debt, he is to be regarded as the principal debtor, and the mortgagor occupies the position of a surety; and the mortgagee is permitted to resort to the grantee to recover the deficiency after applying the proceeds of a sale of the mortgaged premises, and this by the equity rule that the creditor is entitled to the benefit of all the collateral securities which his debtor has obtained to reinforce the principal obligation, though his right is strictly an equitable one, and its exercise at law has been refused. But the broad doctrine has since been laid down, that one for whose benefit a promise is made to another may maintain an action upon the promise, though he is not a party to the agreement or privy to the consideration thereof; and it was then held in unqualified terms that whoever has for a valuable consideration assumed and agreed to pay another’s debt may be sued directly by the creditor, and that a mortgagee or other incum-brancer may maintain a personal action against a purchaser from the *308 owner of tbe equity of redemption wbo bas agreed with his grantor to assume and pay off the incumbrance, if the party with whom the agreement was made was himself personally liable upon the mortgage debt. Sheldon on Subrogation (2d) pp. 128-9, sec. 85. ¥e have in recent cases held that where a contract between two parties is made for the benefit of a third, the latter may sue thereon and recover although not strictly a privy to the contract.” One of the leading cases on the subject —Baber v. Hanie, 163 N. C., 588, is cited. See 21 A. L. R., 411, 423, 433; Parlier v. Miller, 186 N. C., 501; Keller v. Parrish, 196 N. C., 733; Green v. Elias, 198 N. C., 256; Brown v. Turner, 202 N. C., 227. We think on all the evidence in this case, there was no novation, express or implied. There was no substitution of a new debt or obligation for an existing one. In Brown v. Turner, supra, at pages 229-30, the following is said: “The doctrine that the purchaser of an equity of redemption assuming the payment of the mortgage debt is the principal and his grantor the surety, obtains as between themselves and does not preclude the mortgagee from proceeding against the mortgagor as his principal debtor, at least when he does not assent to the agreement. So far as the mortgagee is interested the mortgagor is not a mere surety. The mortgagee is not required first to foreclose his mortgage; he may bring suit only on the note. The fact that the mortgagor has sold the equity of redemption to a purchaser who assumes the mortgage debt does not change the right of the holder of the note to pursue the personal remedy. He may bring an action in personam or an action in rem, or he may pursue both remedies in one action. The debt is the primary obligation between the parties and the note is the primary evidence of the debt. The execution of the mortgage does not merge the mortgagor’s personal liability.” From the above decision as between the defendant Lee and the plaintiff the said Lee is a principal debtor and not a mere surety. It is different as between Dill and Company, Incorporated, and Lee, in that case Lee is surety. But be that as it may if the relationship of Lee was that of surety it would not avail him. In Arant on Suretyship (Hornbook Series, 1931), at pp. 313 and 314, the following principle is laid down: “It is also said that the creditor’s indulgence toward the principal, so long as it takes the form of mere passivity, and results from motives .of mere benevolence, is assumed to be for the benefit of the surety as well as the principal and, for this reason, the surety’s assent to forbearance is presumed. But, if the creditor for a consideration promises to give the principal a longer time to perform, he is considered to be acting for his own interest; because *309 of this, the surety’s assent is not presumed, 'and he is, as a consequence, discharged. . . . It is generally held that the surety is liable so long as the creditor does no act that invalidates his mortgage or lien as security. . . . The same conclusion should follow where property held by the creditor as security is lost, if the creditor breaks a promise either to the principal or the surety to protect it by insuring it. The surety should also be discharged pro tanto when the nature of property accepted as security is such that the preservation of its value requires affirmative action by the creditor.” In Neal v. Freeman, 85 N. C., p. 445-6, Ruffin, J., citing authorities, says: “A creditor is not bound to a surety for active diligence against the principal, for it is the contract of the surety that the principal shall pay the debt, and it is his business therefore to see that he does so. Consequently, a forbearance to sue, even if accompanied with a failure to inform the surety of the principal’s want of punctuality, will not discharge the former. . . . There is no release of any security; no change in the terms of their contract; no contract to forbear for a stipulated time; no tender of the amounts due and refusal; nothing in short which could imply bad faith on the part of the creditor, or a disregard, or even indifference to the rights and interests of the sureties.” In Bank v. Homesley, 99 N. C., at p. 534, citing authorities: “The doctrine extracted from these cases, where the creditor merely remains passive, doing nothing himself detrimental to the sureties, while the opportunity is afforded them, by paying the debt and having the judgment .assigned to a trustee, so as to place it under their control, cannot be invoked for the relief of the sureties in this ease.” A surety is a maker (of a note) and is primarily liable for the payment of the debt, and is not entitled to notice of dishonor. Rouse v. Wooten, 140 N. C., 557; Edwards v. Insurance Co., 173 N. C., 614; Horton v. Wilson, 175 N. C., 533. Walters v. Rogers, 198 N. C., at p. 211, citing authorities: “There can be no doubt of the general rule that a nonassenting surety in a negotiable instrument is discharged from liability when the creditor makes a valid contract with the principal debtor to postpone the day of payment and thereby puts it beyond the power of the surety to pay the debt and sue the principal. But, if at the time the extension is granted to the principal, the creditor expressly reserves his remedies against the surety, the latter will not be discharged — this on the theory that in such event the surety could pay the debt and sue the principal, although the creditor could not.” We do not think that the right to the proceeds of the redemption of the stock as the pleadings now stand, entitles the defendant Lee to any set-off or counterclaim against the plaintiff. *310 When Lee assumed the debt of Whitehurst to plaintiff he obligated to pay it. There was no novation when he sold to Dill and Company, Incorporated, and it assumed the obligation. We can see no such negligence on the part of the plaintiff, under the facts and circumstances of this case, as would relieve the defendant Lee from the obligation he assumed when he purchased the land from the Whitehursts. The judgment of the court below on the demurrers of defendant to the answer and amended answer must be sustained. The judgment is Affirmed.