First Carolinas Joint Stock Land Bank v. Page

Stacy, C. I., after stating tbe facts: The plaintiff, a donee beneficiary, and the mortgagors, the Pages, and the grantor, Broadacres Orchard Company, are seeking to hold the grantee, Salvation Army, primarily liable for the mortgage debt on the assumption clause contained in the deed conveying to the Army the equity of redemption in 5,030 acres of land. The briefs are replete with learning on the subject, but the case, in reality, falls within a comparatively narrow compass. The law undoubtedly is, that when a purchaser of mortgaged lands, by a valid and sufficient contract of assumption, agrees with the mortgagor, who is personally liable therefor, to assume and to pay off the mortgage debt, such agreement inures to the benefit of the holder of the mortgage, and upon its acceptance by him, or reliance thereon by the mortgagee, thenceforth as between themselves, the grantee occupies the position of principal debtor and the mortgagor that of surety, and the liability thus arising from said assumption agreement may be enforced by suit in equity, under the doctrine of subrogation, Baber v. Hanie, 163 N. C., 588, 80 S. E., 57, or by action at law, as upon a contract made for the benefit of a third person, Rector v. Byda, 180 N. C., 577, 105 S. E., 170, Gorrell v. Water Co., 124 N. C., 328, 32 S. E., 720, 70 Am. St., 598, 46 L. R. A., 513. See full annotation on the subject, 21 A. L. R., 439; 78 Am. Dec., 72; 19 R. C. L., 373. The mortgagee is entitled to appropriate for his debt any security acquired or held by his debtor for its payment. Brown v. Turner, 202 N. C., 227, 162 S. E., 608; Voorhees v. Porter, 134 N. C., 591, 47 S. E., 31; Woodcock v. Bostic, 118 N. C., 822, 24 S. E., 362. Nor is the mortgagor and the grantee at liberty thereafter to rescind said agreement without the consent of the mortgagee. Keller v. Parrish, 196 N. C., 733, 147 S. E., 9; Parlier v. Miller, 186 N. C., 501, 119 S. E., 898; 41 C. J., 749. Especially is this so where indulgence has been granted upon reliance of the solvency of the grantee. Keller v. Parrish, supra. In éacli of the cases above cited, the Court was dealing with a contract of assumption, the validity and binding effect of which was not questioned; but, here, the sufficiency and enforceability of the assumption agreement is assailed. The question then arises: What defenses may the grantee interpose in an action by the mortgagee on the assumption clause ? It will not be controverted, we apprehend, that one who claims the benefit of a contract which he fortuitously discovers, or picks up in the *23 road as it were, must take it as be finds it. Glass Co. v. Fidelity Co., 193 N. C., 769, 138 S. E., 143. As said by tbe Supreme Court of Iowa in Shult v. Doyle, 200 Ia., 1, 201 N. W., 787, speaking of tbe right of a mortgagee to sue on an assumption agreement: “Tbe cause of action tbus created in bis favor is a bit of legal grace; it cost him nothing; it simply fell upon him, without effort or knowledge on bis part. He is entitled to it, such as it is. He has no ground of appeal to equity either to expand it or to prevent its shrinkage. Nor is bis plea of estoppel available to him as against tbe very truth. Peters v. Goodrich, 192 Iowa, 790, 185 N. W., 903.” Indeed, it is not perceived upon what theory tbe rights of a donee beneficiary may be said to be greater than is provided by tbe contract out of which they spring. Bank v. Assurance Co., 188 N. C., 747. Tbe fact that an assumption agreement, after acceptance by the mortgagee, is not thereafter subject to rescission without his consent, adds nothing to the original agreement; it simply preserves the contract as it is, and as accepted. So, if the original agreement be conditional, voidable, or unenforceable at the time of its making, or is subsequently breached by the mortgagor, the rights of the mortgagee are necessarily limited and affected thereby. And although the mortgage indebtedness may be evidenced by negotiable notes, the law governing negotiable instruments does not extend to the assumption agreement. Gray v. Bricker, 182 Iowa, 816, 166 N. W., 284. The mortgagee is in no position to claim any rights as an innocent purchaser. Bank v. Kirby, 191 Iowa, 786, 183 N. W., 478. In 41 C. L, 754, the authorities on the subject are epitomized as follows: “In the case of a contract by the grantee of mortgaged premises to assume the payment of the mortgage thereon, where the mortgagee is not a party to such contract and has paid no part of the consideration, he acquires no greater rights than the covenantee or promisee, and takes the covenant subject to all legal and equitable defenses which would have been available against him.” And in the Restatement of the Law of Contracts by the American Law Institute, the heading of section 140 is as follows: “There can be no donee beneficiary or creditor beneficiary unless a contract has been formed between a promisor and promisee; and if a contract is conditional, voidable, or unenforceable at the time of its formation, or subsequently ceases to be binding in whole or in part because of impossibility, illegality or the present or prospective failure of the promisee to perform a return promise which was the consideration for the promisor’s promise, the right of a donee beneficiary or creditor beneficiary under the contract is subject to the same limitation.” *24 But without going as far as the above statements, we think the present case is controlled by the terms of the contract of I March, 1931, between H. A. Page, Jr., and the Salvation Army. It is true, the plaintiff contends that the assumption clause appearing in the deed from the Orchard Company to the Army alone determines the rights of the parties, but this is not the whole of the contract. Indeed, it may be observed that the grantor in this deed, Broadacres Orchard Company, never assumed the payment of plaintiff’s debt, and at no time became liable therefor. There is authority for the position, with decisions to the contrary, that the mortgagee acquires no right to enforce the assumption agreement unless the grantor in the deed is personally liable for the mortgage debt. Annotation, 12 A. L. R., 1528. But we pass by this suggestion, and proceed to a consideration of the terms of the contract of 7 March, 1931. At the very beginning of this agreement it is recited that “for and in consideration of the mutual promises, agreements and benefits hereinafter mentioned,” thus making the promises of the parties dependent one upon the other. 13 C. J., 567, ei seq. The heart of a contract is the intention of the parties. Cole v. Fibre Co., 200 N. C., 484, 157 S. E., 857. That Page has failed to carry out his part of the agreement is conceded and established by the verdict. He has not only breached it, but also abandoned it. This precludes any recovery by the plaintiff against the Army. Judgment to this effect should have been entered on the verdict. Error and remanded.