Duvall-Percival Trust Co. v. Jenkins (16 F.2d 223, 1926)

LEWIS, Circuit Judge.

The trial court sustained a demurrer to tbe complaint, exception was saved to that ruling and plaintiff has brought tbe case here. We summarize tbe facts pleaded, admitted by demurrer, as tbe basis of defendants’ asserted liability: (1) The plaintiff is a Missouri corporation having its principal place of business at Butler, Missouri; (2) tbe defendants are citizens and residents of Kansas; (3) on January 10, 1918, Arch W. Beamer and wife owned tbe S. E. %, of Sec. 3, Town. 30, R. 33, Barton County, Missouri, on that day they gave plaintiff their $5,000 promissory note due March 1, 1925, bearing interest from March 1, 1918, payable annually, payments of both principal and interest to be made at the office of Duvall-Pereival Trust Company in Butler, Missouri, and to secure payment of said principal sum and interest Beamer and wife at the same time executed and delivered a deed of trust on said land, with power of sale in the trustee on default in said payments; (4) thereafter on January 17, 1919, Beamer and wife conveyed said quarter section by warranty deed to Mattie E. Roberts, subject to the $5,000 mortgage; (5) thereaffc er H. A. Beck and wife became the owners of the quarter section and assumed in the deed to them payment of said mortgage debt; (6) thereafter Beck and wife by warranty deed conveyed the quarter section to defendants, which deed recited, “Subject to deed of trust for $5,000 with interest at 7 per cent, whieh seeond party (Jenkins and wife) assumes and agrees to pay;” (7) the defendants, after the conveyance to them, insured the house and buildings on the land for the benefit of plaintiff as mortgagee, the policy providing that insurance be applied on payment of the mortgage indebtedness in case of loss (this was required by the deed of trust), and defendants paid to plaintiff one installment of interest on the indebtedness and they were accepted by plaintiff as its debtors; (8) all of said deeds, contracts, agreements and promises were made in the State of Missouri; (9) there was default in the payment of said $5,-000 note and part of the interest, the trustee named in the deed of trust refused to act, and the substituted trustee sold the land in accordance with the terms of the deed of trust, credited the amount received from the sale on the note, and $3,973.01 thereof remained unpaid, for whieh sum with interest plaintiff asked judgment.

In the deed from Beamer to Roberts the grantee did not assume and agree to pay the mortgage debt; and in many jurisdictions, including Kansas where this suit was instituted, it is held that no subsequent grantee would be personally liable to the mortgagee for the debt, although the deed to the subsequent grantee might contain an assumption clause. Colorado Savings Bank v. Bales, 101 Kan. 100, 165 P. 843; Nelson v. Rogers, 47 Minn. 103, 49 N. W. 526; Eakin v. Shultz, 61 N. J. Eq. 156, 47 A. 274; Y. M. C. A. v. Croft, 34 Or. 106, 55 P. 439, 75 Am. St. Rep. 568; Fry v. Ausman, 29 S. D. 30, 135 N. W. 708, 39 L. R. A. (N. S.) 150, Ann. Cas. 1914C, 842. These cases, and others like them, are based on the principle that the effect of the assumption clause is to make the grantee the principal debtor and his grantor a surety for the payment of the mortgage debt (Keller v. Ashford, 133 U. S. 610, 10 S. Ct. 494, 33 L. Ed. 667; Union Mut. Life Ins. Co. v. Hanford, 143 U. S. 187, 12 S. Ct. 437, 36 L. Ed. 118; Johns v. Wilson, 180 U. S. 440, 21 S. Ct. 445, 45 L. Ed. 613), and that where the grantor is not personally liable to the mortgagee, the assumption clause in a deed which he may make is without any effect, because there was no liability on his part which his grantee could assume. The contract of the grantee when valid is to indemnify the grantor. Williston on Contracts, §-§ 480-486, treats the subject, and on this point says: “The promisee (grantor) has no interest in the performance of this promise, since he is not personally liable for the debt, and he is no longer the owner of the premises. * * * The decisions which generally deny the mortgagee a right to recover in such a case, therefore, seem sound;” and he cites cases in support of his conclusion, and also many that hold to the contrary. Some of the latter are the following: Crone v. Stinde, 156 Mo. 262, 55 S. W. 863, 56 S. W. 907; Marble Sav. Bank v. Mesarvey, 101 Iowa, 285, 70 N. W..198; Hare v. Murphy, 45 Neb. 809, 64 N. W. 211, 29 L. R. A. 851; Enos v. Sanger, 96 Wis. 150, 70 N. W. 1069, 37 L. R. A. 862, 65 Am. St. Rep. 38; McDonald v. Finseth, 32 N. D. 400, 155 N. W. 863, L. R. A. 1916D, 149; and McKay v. Ward, 20 Utah, 149, 57 P. 1024, 46 L. R. A. 623. In the last two the subject is fully reviewed and authorities pro and con cited. These cases, and others like them, go upon the theory that the assumption of the debt by. the grantee is for the benefit of the mortgagee, and if it be made on a valid consideration and the mortgagee accepts the grantee as his' debtor the fact of personal non-liability of his grantor for the debt is wholly immaterial. A contractual relation between mortgagee and grantee was thus brought about. The divergence is of long standing, has been persistent, and the two rules stand out in clear contrast. There may be, there is, sharp controversy as to which of the two is founded on the better reason; but ea