Tamiami Inv. Co. v. Berk

THOMPSON, Circuit Judge. This is an appeal by the plaintiff .from a judgment of the District Court sustaining a statutory demurrer to the plaintiff’s statement of claim. The Tamiami Investment Company, plaintiff herein, conveyed a tract of land in Florida to the Clayton C. Townes Company. The Townes Company executed and delivered to the plaintiff a number of promissory notes aggregating $116,852.99, and, as collateral security therefor, delivered to the vendor a mortgage deed covering the same tract of land. Laier the Townes Company conveyed the land by deed to the defendant, Berk. The deed was acknowledged and delivered in Ohio. It recited the existence of three mortgages, among which was the mortgage to the Tami-ami Company, and contained the following clause: “All of which the Second Party hereby assumes and agrees to pay.” The defendant paid all but $26,947.24 of the principal debt evidenced by the notes and mortgage. The plaintiff brought snit against Berk in the District Court to recover the amount duo on the notes, without having brought suit against the Townes Company, or having foreclosed the mortgage. The defendant, by affidavit of defense in lieu of demurrer, raised the following issues: “1st. Plaintiff has not stated a good and legal cause of action against the defendant. “2nd. Under the law the plaintiff cannot maintain this suit in its own name. “3rd. Plaintiff does not aver that the mortgaged property has been applied to the payment of the debt, secured by said mortgage. “4th. Plaintiff cannot maintain this snit until it lias pursued its remedy against the real estate secured by said mortgage. “5th. The plain! iff does not aver that it has suffered any loss or damage. “6th. The alleged claim of the plaintiff is contrary to the public policy of the Commonwealth of Pennsylvania as defined in the Act of June 12,1878, P. L. 205, and the decisions of the Courts of said state construing- said Act. “7th. The alleged claim of the plaintiff is illegal and contrary to the common law as construed by the Courts of the United States. “8th. The remedy invoked by the plaintiff is illegal and not authorized by the laws of the Commonwealth of Pennsylvania.” The District Court, in sustaining the demurrer, held that the case was controlled by the Pennsylvania Act of June 12, 3878, P. L. 205 ( 21 PS §§ 655, 656), which specifically denies a mortgagee the right of recovery against a grantee who has merely assumed the mortgage debt by purchasing the property under and subject- thereto, and that there could be no recovery. As an additional ground for deifying recovery, the court pointed out that, if the act of 1878 did not apply, the case was controlled by the ruling in Johns v. Wilson, 180 U. S. 440, 21 S. Ct. 445, 448, 45 L. Ed. 613. The court entered judgment for the defendant, from which the plaintiff appealed. In the recent case of McCurdy’s Estate, 303 Pa. 453, 154 A. 707, the Supreme Court of Pennsylvania construed the a.ct of 1878, and held that recovery upon a contract of as-sumpiion made in Florida is not against the public iioliey of the state of Pennsylvania. It is clear from a review of the federal eases that to support an action by a; mortgagee against a purchaser from the mortgagor there must be privity of contract between the mortgagee and the purchaser. It wifi not suffice to show that, as between the mortgagor and the purchaser, the latter assumed the mortgage. The Supreme Court said in Keller v. Ashford, 133 U. S. 610, 621, 10 S. Ct. 194, 497, 33 L. Ed. 667: “In the case at bar, the promise of Ash-ford was to Thompson, and not to the mortgagees; and there was no privity of contract between them and Ashford. The consideration of the promise moved from Thompson alone. The only object of the promise was to benefit him, and not to benefit the mortgagees or other incumbrancers; and they did not know of, or assent to, the promise at the time it was made, nor afterwards do or omit any act on the faith of it. It is clear, therefore, that Thompson only could maintain an action at law upon that promise. “In equity, as at law, the contract of the purchaser to pay the mortgage being made with the mortgagor, and for his benefit only, creates no direct obligation of the purchaser to the mortgagee.” Tlie court had previously said: “Upon the question whether the mortgagee could sue [1036] at law, there is no occasion to examine the conflicting decisions in the courts of the several states, because it is clearly settled in this court, that he could not.” A succinct statement on this point is found in the opinion of Mr. Justice Gray in Union Mutual Life Insurance Company v. Hanford, 143 U. S. 187, 12 S. Ct. 437, 438, 36 L. Ed. 118: “Few tilings have been the subject of more difference of opinion and conflict, of decision than the nature and extent of the right of a mortgagee of real estate against a subsequent grantee, who by the terms of the conveyance to him agrees to assume and pay the mortgage. “All agree that the grantee is liable to the grantor, and that, as between them, the grantee is the principal and the grantor is the surety, for the payment of the mortgage debt. The chief diversity of opinion has been'upon the question whether the grantee does or does not assume any direct liability to the mortgagee. “By the settled law of this court, the grantee is not directly liable to the mortgagee at law or in equity; and the only remedy of the mortgagee against the grantee is by bill in equity in the right of the mortgagor and grantor, by virtue of the right in equity of a creditor to avail himself of any security which his debtor holds from a third person for the payment of the debt. Keller v. Ashford, 133 U. S. 610, 10 S. Ct. 494 [33 L. Ed. 667]; Willard v. Wood, 135 U. S. 309, 10 S. Ct. 831 [34 L. Ed. 210].” The plaintiff seeks to avoid the effect of the federal decisions by the fact that the purchaser assumed the mortgage debt in Ohio, and that the law of that state should apply. Duvall-Percival Trust Co. v. Jenkins (C. C. A.) 16 F.(2d) 223; Federal Surety Co. v. Minneapolis Steel & Machinery Co. (C. C. A.) 17 F.(2d) 242; Seudder v. Union National Bank, 91 U. S. 406, 23 L. Ed. 245. Its contention is that, under the law of Ohio, a purchaser of land who assumes a mortgage debt is directly liable to the mortgagee. Brewer v. Maurer, 38 Ohio St. 543, 43 Am. Rep. 436; Society of Friends v. Haines, 47 Ohio St. 423, 25 N. E. 119. This does not kelp the plaintiff, however, on the ultimate question whether the demurrer should have been sustained. If the law of Ohio is to be applied, it is in accord with the statement made by the Supreme Court in Johns v. Wilson, supra, that: “Undoubtedly the mortgaged property must first be applied to the payment of the debt.” In Marion Development Co. v. Bruce, 39 Ohio App. 253, 177 N. E. 471, and eases therein cited, it is held that no personal judgment may be entered against the grantee until the mortgaged premises are sold and it is determined that a deficiency^ exists.' In the case at bar, the action was brought against the grantee without a prior determination that a deficiency existed. The judgment of the court below is affirmed.