Upon appeal from a judgment of the Supreme Court of the District
of Columbia in general term affirming a judgment in special term
dismissing a bill in equity founded upon a contract bearing
interest, the sum in dispute at the time of the judgment in general
term, including interest to that time, is the test of the appellate
jurisdiction of this Court.
A recorder's copy of a deed is competent and sufficient evidence
of its contents against the grantee in favor of a person not a
party to it, after the grantee and a person who procured it to be
made and to whom it was originally delivered have failed to produce
it upon notice to do so.
In a deed of real estate, "subject, however, to certain
encumbrances now resting thereon, payment of which is assumed by
the grantee" and containing a covenant of special warranty by the
grantor against all persons claiming under him, the clause assuming
payment of the encumbrances includes existing mortgages made by the
grantor as well as unpaid taxes assessed against him.
The grantee named in a deed of real estate by the terms of which
he assumes the payment of a mortgage thereon is liable to the
grantor for a breach of that agreement, although he is not shown to
have had any knowledge of the deed at the time of its execution, if
after being informed of its terms he collects the rents and sells
and conveys part of the land.
An agreement in a deed of real estate by which the grantee
assumes the payment of a mortgage made by the grantor is a contract
between the grantee and the mortgagor only, and does not, unless
assented to by the mortgagee, create any direct obligation at law
or in equity from the grantee to the mortgagee. But the mortgagee
may avail himself in equity of the right of the mortgagor against
the grantee. And if the mortgagee, after the land has been sold
under a prior mortgage for a sum insufficient to pay that mortgage
and after he has recovered a personal judgment against the
mortgagor execution upon which has been returned unsatisfied,
brings a suit in equity against the grantee alone, and the omission
to make the mortgagor a party is not objected to at the hearing, it
affords no ground for refusing relief.
Page 133 U. S. 611
This was a bill in equity by Henrietta C. Keller, the holder of
a promissory note for $2,000, made by one Thompson, secured by his
mortgage of land in Washington, against Francis A. Ashford as
grantee of the land subject to this mortgage, and who by the terms
of the deed to him assumed payment of encumbrances on the land. The
bill prayed for a decree in the plaintiff's favor against Ashford
for the amount of that note, and for general relief. The case was
heard upon pleadings and proofs, by which it appeared to be as
follows:
On August 17, 1875, Thompson, being seised in fee of lot 5 in
square 889 in the City of Washington, conveyed it to one Rohrer by
a deed of trust in the nature of a mortgage to secure the payment
of Thompson's promissory note of that date for $1,500, payable in
three years with interest at ten percent, held by one Harkness.
On February 21, 1876, Thompson conveyed the same lot by like
deed of trust to one Cordon to secure the payment of Thompson's
note of that date for $2,000, payable in one year, with interest at
eight percent yearly until paid, to the order of Moses Kelly, and
Kelly endorsed this note for full value to the plaintiff.
On January 1, 1877, Thompson, at the instance and persuasion of
Kelly, executed and acknowledged and delivered to Kelly a deed,
expressed to be made in consideration of the sum of $4,500,
conveying this lot, together with lots 6, 7 and 8 in the same
square (each of which three other lots was also in fact subject to
a mortgage for $2,000) to Ashford in fee, "subject, however, to
certain encumbrances now resting thereon, payment of which is
assumed by said party of the second part," and containing covenants
by the grantor of warranty against all persons claiming from,
under, or through him, and for further assurance. At the date of
this deed, the only encumbrances on the land conveyed were the five
mortgages above mentioned and some unpaid taxes assessed against
Thompson while owner of the land. On January 22, 1877, this deed,
together with a notary's certificate of its acknowledgment by the
grantor, was recorded in the registry of the District of
Columbia.
Page 133 U. S. 612
At the taking of the depositions before the examiner, the
plaintiff, having given notice to Ashford and to Kelly to produce
the original deed, and both of them having failed to do so, was
permitted, against the defendant's objection, to put in evidence a
copy of the deed and acknowledgment, certified by the recorder to
be a true copy.
No consideration was actually paid for the conveyance. The value
of the lots conveyed was, according to Thompson's testimony, $4,000
each, or $16,000 in all, or, according to Ashford's testimony, not
less than $3,400 each or $13,600 in all.
Thompson testified that he never had any negotiations with
Ashford about the property, and that he was induced to make this
deed by the assurance of Kelly that the grantee would assume the
encumbrances upon the land and relieve him from liability upon the
notes he had given secured by mortgage.
Ashford testified that he never had any negotiations with anyone
about the purchase of the land, and that in February, 1877, Kelly,
who was his father-in-law, to whom he had lent much money and for
whom he had endorsed several notes, told him that in order to
secure him from loss, he had procured a conveyance to be made to
him of these four lots, in which be thought "there was considerable
equity," informed him at the same time that there were encumbrances
or mortgages upon the property, but did not specifically mention
any of them except the $1,500 mortgage upon lot 5; told him that
the interest on this was pressing, and that if he would pay it,
Kelly would relieve him from any further trouble as to the
encumbrances, and advised him to go on and collect the rents of the
property so as to indemnify himself against that interest and pay
the taxes in arrears.
It was proved that Ashford, in March, 1877, entered into
possession of the four lots and paid the taxes previously assessed
upon them, and also paid interest accruing under the mortgage for
$1,500 on lot 5, and collected the rents of the four lots, until
December 4, 1877, when he sold and conveyed lots 7 and 8 to one
Duncan, subject to existing encumbrances thereon, and continued to
collect the rents of the other two
Page 133 U. S. 613
lots, and to pay the interest accruing under the mortgage for
$1,500 on lot 5, until March 14, 1878, when this lot was sold,
pursuant to the provisions of that mortgage, by public auction and
conveyed to Harkness for the sum of $1,700, which was insufficient
to satisfy the amount then due on that mortgage.
On comparing Ashford's testimony with that of Boarman, the
plaintiff's attorney, and with a letter written by Ashford to
Boarman on October 3, 1877, it clearly appears that Ashford was
informed of the clause in the deed to him, assuming payment of
encumbrances, and was requested to pay the plaintiff's mortgage, as
early as September, 1877, and then, as well as constantly
afterwards, declined to pay it, or to recognize any personal
liability to do so. There was no direct evidence that he knew of
this clause before September, 1877.
The plaintiff brought an action at law upon the note against
Thompson as maker and Kelly as endorser on November 13, 1877, and
recovered judgment against both in December, 1877, on which
execution issued and was returned unsatisfied April 15, 1878.
The present bill was filed May 13, 1878. A decree dismissing the
bill was rendered in special term, May 9, 1882, which, after the
death of Ashford and the substitution of his executrix in his
stead, was affirmed in general term February 16, 1885, upon the
grounds that Ashford had never accepted the deed to him and also
that the plaintiff's remedy, if any, was at law. 3 Mackey 455. On
the same day, as the record states, "from this decree the plaintiff
appeals in open court to the Supreme Court of the United States,
which appeal is allowed." The appeal bond was approved February 18,
and the appeal was entered in this Court April 10, 1885.
The case was argued upon a motion to dismiss the appeal for want
of sufficient amount in controversy to give this Court
jurisdiction, as well as upon the merits.
Page 133 U. S. 617
MR. JUSTICE GRAY, after stating the case as above, delivered the
opinion of the Court.
The motion to dismiss for want of jurisdiction must be denied.
This appeal was claimed and allowed February 16, 1885. At that
time, the Act of February 25, 1879, c. 99, was in force, which
provided that
"The final judgment or decree of the Supreme Court of the
District of Columbia in any case where the matter in dispute,
exclusive of costs, exceeds the value of twenty-five hundred
dollars may be reexamined and reversed or affirmed in the Supreme
Court of the United States upon writ of error or appeal."
20 Stat. 321. The case is not affected by the Act of March 3,
1885, c. 355, § 1, further limiting the appellate jurisdiction of
this Court, because that act only provides that "no appeal or writ
of error shall hereafter be allowed" from any such judgment or
decree unless the matter in dispute, exclusive of costs, exceeds
the sum of $5,000. 23 Stat. 443. The change of phraseology,
referring to the time when the appeal or writ of error is allowed
instead of to the time when it is entertained by this Court, was
evidently intended to prevent cutting off appeals taken and allowed
before the passage of the act, as had been held to be the effect of
the language used in the act of 1879.
Railroad Co. v.
Grant, 98 U. S. 398. In a
suit founded upon a contract, the sum in dispute at the time of the
judgment or decree appealed from, including any interest then
accrued, is the test of appellate jurisdiction.
Bank of
United States v. Daniel, 12 Pet. 32,
37 U. S. 52;
The Patapsco,
12 Wall. 451;
New York
Elevated
Page 133 U. S. 618
Railroad v. Fifth National Bank, 118 U.
S. 608;
Zeckendorf v. Johnson, 123 U.
S. 617. By the express terms of the promissory note used
on in this case, it bore interest at the rate of eight percent
yearly from its date until paid. Computing interest accordingly,
the sum in dispute was much more than $2,500 at the time of the
decree in general term, which was the decree from which this appeal
was taken. In
Railroad Co. v. Trook, 100 U.
S. 112, cited for the appellee, as in
District of
Columbia v. Gannon, 130 U. S. 227, the
judgment in special term was for damages in an action sounding in
tort, which bore no interest either by the general law or by the
judgment of affirmance in general term.
Nor can the objection of the defendant that the original deed
from Thompson to Ashford was not produced or its execution proved
be sustained. The deed is admitted to have been duly recorded.
There is no presumption that it was in the possession of the
plaintiff, who was not a party to it, but it is to be presumed to
have been in the possession either of Ashford, the grantee named in
the deed, or of Kelly, who procured the deed to be made, and to
whom it was originally delivered. Both of them having failed to
produce it upon notice to do so, the recorder's copy was competent
and sufficient evidence of the contents of the deed as between the
parties to this suit. Rev.Stat.D.C. §§ 440, 467;
Dick v.
Balch, 8 Pet. 30.
But upon the merits of the case, we are unable to concur with
the views expressed by the court below in its opinion reported in 3
Mackey 455, either as to the effect of the testimony or as to the
rights of the parties. The material facts, as they appear to us
upon full examination of the record, have been already stated. It
remains to consider the law applicable to those facts.
The questions to be decided concern the extent, the obligation,
and the enforcement of the agreement created by the clause in the
deed of conveyance from Thompson to Ashford of this and three other
lots, "subject, however, to certain encumbrances now resting
thereon, payment of which is assumed by said party of the second
part."
Page 133 U. S. 619
The five mortgages made by the grantor -- namely, the
plaintiff's mortgage for $2,000 and a prior mortgage for $1,500 on
lot 5, and a mortgage of $2,000 on each of the three other lots,
and some unpaid taxes which had been assessed against the grantor
-- were encumbrances, and were the only encumbrances existing upon
the granted premises at the time of the execution of this
conveyance. Rawle on Covenants (5th ed.) § 77. The clause in
question, by the words "certain encumbrances now resting thereon,"
designates and comprehends all those mortgages and taxes as clearly
as if the words used had been "the encumbrances" or "all
encumbrances," or had particularly described each mortgage and each
tax. We give no weight to Thompson's testimony as to Kelly's
previous conversation with him to the same effect, because that
conversation is not shown to have been authorized by or
communicated to Ashford, and cannot affect the legal construction
of the deed as against him.
It was argued that because the deed contains a covenant of
special warranty against all persons claiming under the grantor,
the words "certain encumbrances" cannot include the mortgages made
by the grantor, but must be limited to the unpaid taxes which, it
is said, would not come within the covenant of special warranty.
But the answer to this argument is that any person claiming title
by virtue of a lien created by taxes assessed against the grantor
would claim under the grantor equally with one claiming by a
mortgage from him, and encumbrances expressly assumed by the
grantee are necessarily excluded from the covenants of the
grantor.
Ashford is not shown to have had any knowledge of the conveyance
at the time of its execution, and a suggestion was made in
argument, based upon some vague expressions in his testimony, that
the conveyance was intended to be made to him, by way of mortgage
only, to secure him against loss on his previous loans to, and
endorsements for, Kelly. But his subsequent acts are quite
inconsistent with the theory that the conveyance did not vest the
legal estate in him absolutely.
Within a month or two after the conveyance, having been told
that the four lots had been conveyed to him and were
Page 133 U. S. 620
subject to encumbrances, although perhaps not then informed of
the amount of the encumbrances, he entered into possession of the
lots and thenceforth collected the rents, and within nine months
after the conveyance he had notice of the clause assuming payment
of encumbrances, and was requested to pay the plaintiff's mortgage,
and declined to pay it or to recognize any personal liability for
it; yet he afterwards sold and conveyed away two of the lots, and
continued to keep possession, and to collect rents, of the other
two. Having thus accepted the benefit of the conveyance, he cannot
repudiate the burden imposed upon him by the express agreement
therein, and would clearly have been liable to his grantor for any
breach of that agreement.
Blyer v. Monholland, 2 Sandf.Ch.
478;
Coolidge v. Smith, 129 Mass. 554;
Locke v.
Homer, 131 Mass. 93;
Muhlig v. Fiske, 131 Mass.
110.
The case therefore stands just as if Ashford had himself
received a deed by which he in terms agreed to pay a mortgage made
by the grantor. In such a case, according to the general, not to
say uniform, current of American authority as shown by the cases
collected in the briefs of counsel, the mortgagee is entitled in
some form to enforce the agreement against the grantee, and much of
the argument at the bar was devoted to the question whether his
remedy should be at law or in equity.
Upon the question whether the mortgagee could sue 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.
This case cannot be distinguished from that of
National Bank
v. Grand Lodge, 98 U. S. 123, and
clearly falls within the general rule upon which the judgment in
that case was founded. It was there held that a contract by which
the grand lodge, for a consideration moving from another
corporation, agreed with it to assume the payment of its bonds
would not support an action against the grand lodge by a holder of
such bonds, and Mr. Justice Strong, delivering judgment, after
observing that the contract was made between and for the benefit of
the
Page 133 U. S. 621
two corporations, that the holders of the bonds were not parties
to it, and that there was no privity between them and the grand
lodge, said:
"We do not propose to enter at large upon a consideration of the
inquiry how far privity of contract between a plaintiff and
defendant is necessary to the maintenance of an action of
assumpsit. The subject has been much debated, and the decisions are
not all reconcilable. No doubt the general rule is that such a
privity must exist. But there are confessedly many exceptions to
it. One of them, and by far the most frequent one, is the case
where, under a contract between two persons, assets have come to
the promisor's hands or under his control which in equity belong to
third person. In such a case it is held that the third person may
sue in his own name. But then the suit is founded rather on the
implied undertaking, the law raises from the possession of the
assets, than on the express promise. Another exception is where the
plaintiff is the beneficiary solely interested in the promise, as
where one person contracts with another to pay money or deliver
some valuable thing to a third. But where a debt already exists
from one person to another, a promise by a third person to pay such
debt being primarily for the benefit of the original debtor, and to
relieve him from liability to pay it, there being no novation, he
has a right of action against the promisor for his own indemnity,
and if the original creditor can also sue, the promisor would be
liable to two separate actions, and therefore the rule is that the
original creditor cannot sue. His case is not an exception from the
general rule that privity of contract is required."
98 U.S.
98 U. S. 124.
See also Cragin v. Lovell, 109 U.
S. 194.
In the earlier case of
Hendrick v. Lindsay,
93 U. S. 143, cited
by the defendant, a request, accompanied by a promise of indemnity,
to one person to sign an appeal bond was construed to include
another person who signed it as surety, and therefore to support a
joint action by the principal and the surety, both of whom had
signed the bond relying upon the promise, so that the only
consideration for the promise moved from them.
In the case at bar, the promise of Ashford was to Thompson,
Page 133 U. S. 622
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 encumbrancers, 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.
Parsons v. Freeman, 2 P.Wms. 664, note; Ambler 115;
Oxford v. Rodney, 14 Ves. 417; 424;
In re Empress
Engineering Co., 16 Ch.D. 125;
Gandy v. Gandy, 30
Ch.D. 57, 67.
But it has been held by many state courts of high authority, in
accordance with the suggestion of Lord Hardwicke in
Parsons v.
Freeman, Ambler 116, that in a court of equity the mortgagee
may avail himself of the right of the mortgagor against the
purchaser.
This result has been attained by a development and application
of the ancient and familiar doctrine in equity that a creditor
shall have the benefit of any obligation or security given by the
principal to the surety for the payment of the debt.
Maure v.
Harrison, 1 Eq.Cas.Ab. 93, pl. 5; Bac.Ab. "Surety," D. 4;
Wright v. Morely, 11 Ves. 12, 22;
Phillips v.
Thompson, 2 Johns.Ch. 418;
Curtis v. Tyler, 9 Paige
432, 435;
Institution for Savings v. Fairhaven Bank, 9
Allen 175;
Hampton v. Phipps, 108 U.
S. 260,
108 U. S.
263.
In
Hampton v. Phipps, just cited, this Court declared
the doctrine to be well settled, and applicable
"equally between sureties, so that securities placed by the
principal in the hands of one to operate as an indemnity by payment
of the debt shall inure to the benefit of all,"
and declined to apply the doctrine to the case before it because
the mortgage in question was given by one surety to another merely
to indemnify him against being compelled to pay a greater share of
the debt
Page 133 U. S. 623
than the sureties had agreed between themselves that he should
bear, and he had not been compelled to pay a greater share.
The doctrine of the right of a creditor to the benefit of all
securities given by the principal to the surety for the payment of
the debt does not rest upon any liability of the principal to the
creditor, or upon any peculiar relation of the surety to wards the
creditor, but upon the ground that the surety, being the creditor's
debtor and in fact occupying the relation of surety to another
other person, has received from that person an obligation or
security for the payment of the debt which a court of equity will
therefore compel to be applied to that purpose at the suit of the
creditor. Where the person ultimately held liable is himself a
debtor of the creditor, the relief awarded has no reference to that
fact, but is grounded wholly on the right of the creditor to avail
himself of the right of the surety against the principal. If the
person who is admitted to be the creditor's debtor stands at the
time of receiving the security in the relation of surety to the
person from whom he receives it, it is quite immaterial whether
that person is or ever has been a debtor of the principal creditor,
or whether the relation of suretyship or the indemnity to the
surety existed, or was known to the creditor, when the debt was
contracted. In short, if one person agrees with another to be
primarily liable for a debt due from that other to a third person,
so that, as between the parties to the agreement, the first is the
principal and the second the surety, the creditor of such surety is
entitled in equity to be substituted in his place for the purpose
of compelling such principal to pay the debt. It is in accordance
with the doctrine thus understood that the Court of Chancery of New
York, the Court of Chancery and the Court of Errors of New Jersey,
and the Supreme Court of Michigan have held a mortgagee to be
entitled to avail himself of an agreement in a deed of conveyance
from the mortgagor by which the grantee promises to pay the
mortgage.
Halsey v. Reed, 9 Paige 446, 452;
King v.
Whitely, 10 Paige 465;
Blyer v. Monholland, 2
Sandf.Ch. 478;
Klapworth v. Dressler, 13 N.J.Eq. 62;
Hoy v. Bramhall, 19 C. E.
Page 133 U. S. 624
Green 74, 563;
Crowell v. Currier, 27 N.J.Eq. 152;
on appeal, nom. Crowell v. St. Barnabas Hospital, 27
N.J.Eq. 650;
Arnaud v. Grigg, 29 N.J.Eq. 482;
Youngs
v. Trustees of Public Schools, 4 Stew.Eq. 290;
Crawford v.
Edwards, 33 Mich. 354, 360;
Miller v. Thompson, 34
Mich. 10;
Higman v. Stewart, 38 Mich. 513, 523;
Hicks
v. McGarry, 38 Mich. 667;
Booth v. Connecticut Ins.
Co., 43 Mich. 299.
See also Pardee v. Treat, 82 N.Y.
385, 387;
Coffin v. Adams, 131 Mass. 133, 137;
Biddel
v. Brizzolara, 64 Cal. 354;
George v. Andrews, 60 Md.
26;
Osborne v. Cabell, 77 Va. 462.
The grounds and limits of the doctrine, as applied to such a
case, have been well stated by Mr. Justice Depue, delivering the
unanimous judgment of the Court of Errors of New Jersey in
Crowell v. St. Barnabus Hospital as follows:
"The right of a mortgagee to enforce payment of the mortgage
debt, either in whole or in part, against the grantee of the
mortgagor does not rest upon any contract of the grantee with him
or with the mortgagor for his benefit. . . ."
"The purchaser of lands subject to mortgage who assumes and
agrees to pay the mortgage debt becomes, as between himself and his
vendor, the principal debtor, and the liability of the vendor as
between the parties is that of a surety. If the vendor pays the
mortgage debt, he may sue the vendee at law for the moneys so
paid."
"In equity, a creditor may have the benefit of all collateral
obligations for the payment of the debt which a person standing in
the situation of a surety for others holds for his indemnity. It is
in the application of this principle that decrees for deficiency in
foreclosure suits have been made against subsequent purchasers, who
have assumed the payment of the mortgage debt, and thereby become
principal debtors, as between themselves and their grantors. . .
."
"But the right of the mortgagee to this remedy does not result
from any fixed or vested right in him, arising either from the
acceptance by the subsequent purchaser of the conveyance of the
mortgaged premises, or from the obligation of the grantee to pay
the mortgage debt as between himself and
Page 133 U. S. 625
his grantor. Though the assumption of the mortgage debt by the
subsequent purchaser is absolute and unqualified in the deed of
conveyance, it will be controlled by a collateral contract made
between him and his grantor, which is not embodied in the deed, and
it will not in any case be available to the mortgagee, unless the
grantor was himself personally liable for the payment of the
mortgage debt."
"Recovery of the deficiency after sale of the mortgaged
premises, against a subsequent purchaser, is adjudged in a court of
equity to the mortgagee not in virtue of any original equity
residing in him. He is allowed, by a mere rule of procedure, to go
directly as a creditor against the person ultimately liable in
order to avoid circuity of action and save the mortgagor, as the
intermediate party, from being harassed for the payment of the debt
and then driven to seek relief over against the person who has
indemnified him and upon whom the liability will ultimately fall.
The equity on which his relief depends is the right of the
mortgagor against his vendee, to which he is permitted to succeed
by substituting himself in the place of the mortgagor."
12 C. E. Green 655, 656.
The decisions of this Court cited for the defendant are not only
quite consistent with this conclusion, but strongly tend to define
the true position of a mortgagee, who has in no way acted on the
faith of, or otherwise made himself a party to, the agreement of
the mortgagor's grantee to pay the mortgage, holding on the one
hand that such a mortgagee has no greater right than the mortgagor
has against the grantee, and therefore cannot object to the
striking out by a court of equity, or to the release by the
mortgagor, of such an agreement, when inserted in the deed by
mistake,
Elliott v. Sackett, 108 U.
S. 132;
Drury v. Hayden, 111 U.
S. 223, and on the other hand that such an agreement
does not, without the mortgagee's assent, put the grantee and the
mortgagor in the relation of principal and surety towards the
mortgagee, so that the latter, by giving time to the grantee, will
discharge the mortgagor,
Shepherd v. May, 115 U.
S. 505,
115 U. S.
511.
The present case is a strong one for the application of the
general doctrine. The land has been sold under a prior mortgage
Page 133 U. S. 626
for a sum insufficient to pay that mortgage, leaving nothing to
be applied toward the payment of the mortgage held by the
plaintiff, and the plaintiff has exhausted her remedy against the
mortgagor personally by recovering judgment against him execution
upon which has been returned unsatisfied.
Although the mortgagor might properly have been made a party to
this bill yet, as no objection was taken on that ground at the
hearing, and the omission to make him a party cannot prejudice any
interest of his or any right of either party to this suit, it
affords no ground for refusing relief.
Mechanics'
Bank v. Seton, 1 Pet. 299;
Whiting v.
Bank of United States, 13 Pet. 6;
Miller v.
Thompson, 34 Mich. 10.
Decree reversed and case remanded with directions to enter a
decree for the plaintiff.