Summary
In Frey v. United Traction Co. of Pittsburgh, 320 Pa. 196, 199, 181 A. 775, a third party beneficiary case, we held that the record should be considered, as if amended in this court, as brought by a legal plaintiff, who had not been named, to the use of the real plaintiff, to conform to the law and the fact.
Summary of this case from Minkin et al. v. MinkinOpinion
October 10, 1935.
November 25, 1935.
Mortgages — Payment — Assumption — Bonds issued pursuant to mortgage — Action by bondholder against grantee — Necessity of foreclosure.
1. Where the grantee of real estate expressly assumes a personal liability, or where there are express words in the deed of conveyance stating that the grant is made on condition that a grantee shall assume such personal liability, for the payment of an encumbrance, the grantee is liable to the creditor upon the maturity of the obligation in an action brought in the name of the grantor-debtor, to the use of the encumbrance creditor, against the grantee-promisor. [199]
2. Where grantee of property of traction company subject to mortgage, held by deed reciting that the property transferred was subject to bonded indebtedness created pursuant to the mortgage or deed of trust, and that the grantee assumed and agreed to pay at maturity all the obligations of the grantor, and grantee by contract with the traction company had expressly assumed payment of all the obligations of the latter, including the bonds secured by the mortgage, it is liable in action of assumpsit by holder of bonds unpaid; and this follows although foreclosure had not taken place and action by the mortgage trustee was necessary for such procedure, where no restrictions on the right of a bondholder to sue at maturity were imposed in the bond or in the mortgage. [198-201]
Contracts — Third party beneficiary — Creditor.
3. A creditor may maintain an action as a third party beneficiary against one who contracts to pay the debts of the debtor. [199]
Mortgages — Bonds issued pursuant to mortgage — Suit by bondholder — Judgment — Execution.
4. Where a mortgage given to a trustee stipulates it shall be for the protection ratably of all the holders of bonds to be issued, but does not prohibit bondholders from bringing suit against the mortgagor, an individual bondholder may upon default institute a suit and obtain judgment, but he will be restricted from issuing execution against the specific property pledged by the mortgage so long as other bonds secured by the same property are unpaid and entitled to the benefit of the security. [200-201]
Actions — Parties — Legal plaintiff and use — plaintiff — Amendment — Appeal.
5. Where suit is brought in the name of the party beneficially interested, instead of by the contracting party to the use of the former, the record may be amended, or treated as amended, in the appellate court, so as to conform to the requirements of the law as to the names of the parties. [199]
Practice — Judgment for want of sufficient affidavit of defense — Refusal — Reversal by appellate court — Judgment for plaintiff — Legal or equitable cause for withholding — Act of April 18, 1874, P. L. 64.
6. Under the Act of April 18, 1874, P. L. 64, where the refusal of judgment for want of a sufficient affidavit of defense has been reversed by the appellate court, judgment must be entered for the plaintiff unless other legal or equitable cause is shown why such judgment should not be entered. [201]
Argued October 10, 1935.
Before FRAZER, C. J., KEPHART, SCHAFFER, MAXEY, DREW, LINN and BARNES, JJ.
Appeal, No. 268, March T., 1935, by plaintiff, from order of C. P. Allegheny Co., April T., 1935, No. 3723, in case of Ernest A. Frey v. United Traction Company of Pittsburgh. Order reversed, record remitted for entry of judgment for plaintiff.
Assumpsit.
The opinion of the Supreme Court states the facts.
Rule for judgment for want of a sufficient affidavit of defense discharged, E. W. MARSHALL, GARDNER and RICHARDSON, JJ., opinion by GARDNER, J. Plaintiff appealed.
Error assigned was discharge of rule.
Ernest Frey, with him R. A. James Balph, for appellant. Robert L. Kirkpatrick, with him Maynard Teall, E. P. Griffiths and Edwin W. Smith, of Reed, Smith, Shaw McClay, for appellee.
This appeal is from the refusal of judgment for want of a sufficient affidavit of defense.
The suit is for the amount of certain bonds issued by the Second Avenue Traction Company pursuant to a mortgage or deed of trust dated December 1, 1894. The defendant is United Traction Company of Pittsburgh. For convenience, the former company will be referred to as Second and the defendant as United. When the bonds matured in 1934 payment was demanded and was refused. Plaintiff avers that by deed dated June 29, 1897, Second sold its interests in certain street railway company leaseholds and other property to United. When sold, the property was subject to the lien of the mortgage or deed of trust referred to, as security for the bondholders; the deed recites that the property transferred is subject to the bonded indebtedness; it also provides that United "hereby assumes and agrees to pay at maturity all the obligations of 'Second Avenue.' "
Defendant admits that it agreed to pay the obligations of Second, that plaintiff is holder of the bonds in suit, and that they have not been paid. In defense it avers that its promise to pay the debts of Second was made to Second and that suit will therefore not lie at the instance of the plaintiff; that the sale by Second to United is within the Act of June 12, 1878, P. L. 205, entitled, "To define the liability of grantees of real estate for the encumbrances thereon" by the terms of which (so defendant contends) a grantee assuming personal liability for the payment of the mortgage debt of a grantor secured by the land conveyed is not answerable to a creditor in plaintiff's position.
We all agree that no defense on the merits is stated; the procedural defect arising from suit in his own name, if considered a defect, can be treated as corrected by amendment in this court.
It is not clear from the record that the contract by which Second transferred this property to United is a conveyance of real estate within the meaning of the words used in the Act of 1878, supra. If it is not, certainly no defense is averred against the right of the plaintiff to sue as a creditor of Second whose debts defendant agreed to pay: Com. ex rel. v. Great American Indemnity Co., 312 Pa. 183, 167 A. 793; Copeland's Est., 313 Pa. 25, 169 A. 367; Philipsborn v. 17th Chestnut Holding Corp., 111 Pa. Super. 9, 169 A. 473. But we shall assume for present purposes (though without deciding the point because it was not argued) that the transaction is within the Act of 1878. It is settled by the decisions of this court that where the grantee of real estate expressly assumes a personal liability, or where there are express words in the deed of conveyance stating that the grant is made on condition that a grantee assume such personal liability, for the payment of an encumbrance, the grantee is liable to the creditor in an action brought in the name of the grantor-debtor, to the use of the encumbrance creditor, against the grantee-promisor: Britton v. Roth, 313 Pa. 352, 169 A. 146; McCurdy's Est., 303 Pa. 453, 154 A. 707; Ruzyc v. Brown et al., 320 Pa. 213. See also Fair Oaks B. L. Assn. v. Kahler, 320 Pa. 245. As, in this view of the case, the action must be brought in the name of the legal plaintiff, we shall regard this record as amended to read — The Second Avenue Traction Company to the use of Ernest A. Frey v. United Traction Company of Pittsburgh: see, M. E. Church of Franklin v. Equitable Surety Co., 269 Pa. 411, 415, 112 A. 551; Ronca v. B. F. Marine Ins. Co., 314 Pa. 449, 451, 172 A. 475.
United also contends that a bondholder may not recover without first establishing that the encumbered property is insufficient to pay his debt, and that, as it does not appear that foreclosure has taken place, the amount of defendant's liability, if any, cannot now be ascertained. The contention finds no support in the contract. It provided for the transfer to the defendant of all Second's assets in "consideration of the payment of all of its obligations as they mature of every character, and the assumption by 'United' [defendant] of all of 'Second Avenue's' covenants and agreements. . . ." Among the obligations assumed and expressly mentioned in the agreement, were the bonds secured by the mortgage. It provided for the issuance of bearer bonds payable December 1, 1934. While it was stipulated that action by the mortgage trustee was necessary for foreclosure, entry and operation of the street railways system, or receivership proceedings, no restrictions on the right of a bondholder to sue at maturity were imposed in the bond or in the mortgage. As Second's liability at maturity of the bonds was absolute immediately to pay them, and as the defendant expressly undertook their payment, United will not be heard to say that foreclosure must precede performance of its obligation; the contention fails because the contract does not provide for the condition now sought to be injected. As the effect of the contract is to make defendant an indemnitor against liability, it is bound to pay when the liability arises, viz., on the maturity of the bonds. Indeed, when it is considered that the effect of the transfer of the property by the agreement of 1897 was to place apparently all the assets of Second under the control and management of United, it must have been intended, as the contract suggests, that United should receive possession taking the burdens with the benefits exactly as Second had held it.
Neither bond nor mortgage prohibits suit by a bondholder on his bond. But, as the mortgage was made for the protection of all the bondholders, ratably, the plaintiff, by the terms of the contract, is not entitled to execution against any of the property mortgaged or pledged so long as other bonds secured by the same property are unpaid and entitled to the benefit of the security. Execution, if any, must be controlled accordingly: Com. v. Susquehanna D. R. R. Co., 122 Pa. 306, 15 A. 448; Western Pa. Hospital v. Mercantile Library Hall Co., 189 Pa. 269, 42 A. 183.
The order appealed from is reversed, the record is remitted to the end that judgment be entered for the plaintiff for such sum as to right and justice may belong unless (Act of April 18, 1874, P. L. 64; Wood v. Kerkeslager, 227 Pa. 536, 538, 76 A. 425; Mancia v. Marquette Nat. Fire Ins. Co., 280 Pa. 174, 124 A. 333) other legal or equitable cause be shown to the court below why such judgment should not be so entered.