John Deere Plow Co. v. Tuinstra

GATES, J. The important facts in this case are as follows: On May 13, 1920, Newport sold his hardware and implement stock to Klein, pursuant to a contract in writing whereby Klein assumed and agreed to pay certain of Newport’s indebtedness. No time was fixed in the contract within which such debts should be paid. On July 24, 1920, Newport brought an action against Klein, upon the ground that Klein 'had failed to pay certain of such assumed indebtedness. In that action a garnishee summons was served upon the Bank of Avon, which then held a note and mortgage given by Hento to Klein as collateral security for a- debt due from Klein to the bank. On September 29, 1920, Klein assigned his interest in the -Hento note and' mortgage to the plaintiff in this case. This assignment was recorded September 30, 1920. This action was brought to enjoin the sale by the sheriff of the Liento note and mortgage, pursuant to- execution issued upon the judgment in the case of Newport v. Klein. The trial court found for the defendantss and entered judgment accordingly. From the judgment and an order denying a new trial, plaintiff appeals. , The ultimate question in this case is whether the right of appellant, under the assignment, is superior to the right of Newport, under his levy, in the Liento note and mortgage. It is entirely clear from the evidence that at the time the action of Newport v. Klein was begun, and at the time the garnishee summons was served upon the Bank of Avon, and at the time of the execution and recording of the assignment of the Hento- note and mortgage to appellant, Newport had not paid the indebtedness that Klein had assumed. The important question then is: Did [557] Newport, the original debtor, become Klein’s surety, as 'between Klein and Newport, when Klein, as a part of the purchase price of Newport’s hardware and implement stock, assumed and agreed to pay certain specified debt.s of Newport? It is the settled law of this jurisdiction that a purchaser of mortgaged realty, who assumes and agrees to pay-the mortgage, thereby becomes the principal debtor, and the mortgagor becomes the surety, at least as between him and the mortgagor, his grantor. Dillaway v. Peterson, 11 S. D. 210, 76 N. W. 925; Miller v. Kennedy, 12 S. D. 478, 81 N. W. 906; Hull v. Hayward, 13 S. D. 292, 83 N. W. 270, 79 Am. St. Rep. 890; Lowa Loan & Tr. Co. v. Schnose, 19 S. D. 248, 103 N. W. 22, 9 Ann. Cas. 255. As was said in Miller v. Kennedy, supra, quoting from Pomeroy, Eq. Jur. (italics ours) : “As between the mortgagor and the grantee, the grantee becomes the principal debtor, primarily liable for the debt, and the mortgagor becomes a surety, with all the consequences ftouting from the relation of suretyship.” Wherein lies the difference between the assumption of a mortgage by a real estate vendee and the assumption of the debt of a seller of personal property by the purchaser? " We confess that we can see no distinction in principle. This court, in Mundt v. Messenger Pub. Co., 42 S. D. 608, 176 N. W. 740, has recognized that there is no distinction in principle, because it has applied the same doctrine in the case of the sale of personal property. In that case we said: “We are of the opinion that when appellant assumed and so agreed to pay said indebtedness to the Unitype Company or its assigns respondent became a surety for the payment of said indebtedness, and that when respondent paid and satisfied said judgments and said indebtedness he became subrogated to‘ all the rights of the Unitype Company or other owners of said notes, and thereby and thereafter the appellant became and was the debtor of respondent.” Therefore, as between Newport and Klein, Klein became the principal debtor of the assumed debts and Newport the surety. One of the consequences flowing from the relation of suretyship is that, when the surety satisfies the obligation, he then becomes entitled to proceed against his principal.' Rev. Code [558] 1919, §§ I5°8 and 1509. The converse necessarily follows that .he is not entitled to so proceed until he has satisfied the obligation. The garnishee action, having beejj brought before Newport had satisfied the obligations which KÍfeih had assumed, was prematurely brought. The garnishment was ineffective, and appellant, by virtue of its assignment of the Hento note and mortgage, obtained a right thereto prior and superior to the right of Newport therein. The learned trial court held that, under section 1470, subd. 1, Rev. Code 1919, the respondent should recover. That subdivision provides: “Upon an indemnity against liability, expressly, or in other equivalent terms, the person indemnified is entitled to recover upon becoming liable.” It is sufficient to say, in answer thereto', that the contract of assumption by Klein was not a contract of indemnity against liability. By .the contract of assumption the mere relation of principal and surety arose, and, as pointed out in Callender v. Edmison, 8 S. D. 81, 65 N. W. 425, no cause of action arose against the principal, Klein, until the surety, Newport, had paid the debt. The judgment and order appealed from are reversed, and the cause is remanded for further proceedings in harmony herewith.