Keller v. Lee

Adams, P. J.: The complaint herein is founded upon the defendant’s covenant to assume and pay the mortgage subject to which he purchased the premises in question; but the pleader has left it quite uncertain whether he relies upon the deed or the contract to establish his-cause of action. Obviously the deed, standing by itself, furnishes no such cause of action as is set forth in the complaint,, and when this point was. raised upon the trial it was contended that the contract furnished the plaintiffs’ cause of action; that the covenant therein expressed. [186] to assume the payment of the Sondeman mortgage was a collateral covenant which was neither extinguished by nor merged in the deed given in fulfillment of the terms of the contract. It was apparently upon some such theory as this that the court directed a verdict for the plaintiffs,.and whether or not a recovery thus obtained can be permitted to- stand would present a question worthy of careful consideration, and one’ concerning which much might perhaps be said upon either side were the -case free from other and more serious difficulties. But even assuming that this action is brought upon the covenant in the contract; that the same was not merged in the deed, and that the plaintiffs are entirely correct in their assumption, we do not see how, upon the conceded facts of the case, the action can be maintained. The covenant relied upon is to assume and pay a certain mortgage covering the premises purchased by the defendant of Schmieding and Keller, and there is nothing in the covenant itself or in the circumstances surrounding its execution which takes -it out of the rule applicable to cases of this character. This rule is that where the grantee in a deed assumes and agrees to pay a mortgage subject to which the conveyance is made, the sole purpose of the covenant is to indemnify the grantor of the premises for any deficiency which may arise upon the sale of the mortgaged premises. In other words, that the land is the primary fund for the payment of the mortgage debt, and that as between the grantor and grantee the liability of the latter is that of indemnitor or surety only. (Coffin v. Lockhart, 60 Hun, 178; Huntley v. Re Voir, 66 id. 291; Matter of Wilbur v. Warren, 104 H. T. 192.) As was said by Andrews, J., in the case last cited: “ If the deed, in addition, contains a covenant on the part, of the grantee to pay the mortgage, the land still remains the primary fund for the.paymeut of the mortgage. * * '* This is in accordance also with the real, intent of the transaction. The essential purpose of such a covenant is to indemnify the mortgagor against the contingency that the land may not bring enough to pay the mortgage debt, and thereby leave him exposed to a claim for a deficiency. (Halsey v. Reed, 9 Paige, 446.) Although the covenant may be in the form, of a direct undertaking to pay the. mortgage debt, and not a mere covenant of indemnity, yet that is its essential character.” [187] In disregard of this rule the plaintiffs, as we have seen, not only paid the mortgage debt without first requiring the mortgagee to resort to the primary fund for its payment, but they also caused the mortgage to be discharged of record before it could be determined that there was any liability on the part of the defendant to pay the same or any portion thereof. Within the rule to which we have just adverted, it would clearly be inequitable to enforce the debt against the purchaser until the primary fund had been charged. (Slauson v. Watkins, 86 N. Y. 597.) And although this is an action at law, we fail to see why it does not fall within the same principle. These views necessarily lead to a reversal of the judgment and order appealed from. All concurred. Judgment and order reversed and a new trial ordered, with costs to the appellant to abide event.