Opinion
November 4, 1959 —
December 1, 1959.
APPEAL from an order of the circuit court for Milwaukee county: RONOLD A. DRECHSLER, Circuit Judge. Affirmed.
For the appellant there was a brief by Wittig Wittig, attorneys, and Michael J. Duginski of counsel, all of Milwaukee, and oral argument by Mr. John A. Wittig and Mr. Duginski.
For the respondent there was a brief by George D. Young, attorney, and John H. Ames of counsel, both of Milwaukee, and oral argument by Mr. Ames.
Action to foreclose a real-estate mortgage in which it is also sought to obtain a deficiency judgment against the defendant Panoramic Enterprises, Inc. (hereinafter referred to as "Panoramic"), and Associated Brokerage, Inc. (hereinafter referred to as "Associated"), in the event the sale price of the mortgaged premises realized on foreclosure should prove insufficient to discharge the mortgage indebtedness.
From the complaint it appears that the mortgage sought to be foreclosed was executed by Panoramic to the plaintiff to secure payment of a $9,500 note bearing six per cent interest, the principal and interest being payable in monthly instalments of $81 each commencing July 1, 1955, with the date of maturity for the unpaid balance being June 23, 1970. It was also alleged that, pursuant to a provision contained in the mortgage note, the plaintiff declared such note and mortgage to be immediately due and payable because of default of the defendants in making payment as provided in the note. It was further stated in the complaint that the mortgaged premises had been conveyed to Associated on October 2, 1957, by warranty deed, and that by the terms of such deed Associated assumed and agreed to pay the balance due on the plaintiff's mortgage.
Associated interposed an answer and counterclaim to the complaint. The material allegations of the answer are as follows:
"2. . . . alleges that the plaintiff and this defendant, on or about September 18, 1958, orally agreed, for valuable consideration, that this defendant would pay to the plaintiff the sum of $2,700 per month, said amount representing the monthly instalments due to the plaintiff under said note and mortgage, plus monthly instalments on 22 other note-and-mortgage transactions between the parties and said amount also representing an additional $800 per month to bring the arrearage up to date within one year.
"3. . . . alleges that the deed [under which Associated assumed and agreed to pay the mortgage indebtedness] was not signed by defendant, Associated Brokerage, Inc."
The material allegations of the counterclaim are contained in paragraph 2 thereof reading as follows:
"2. That on or about the 18th day of September, 1958, the plaintiff herein and the defendant herein, Associated Brokerage, Inc., did orally contract and agree that the plaintiff herein would refrain from any action on the note and mortgage herein by reason of any prior default or deficiency of the defendant, and in consideration therefor the defendant did agree to pay the plaintiff the sum of $2,700 per month, the said amount representing the monthly instalments due to the plaintiff under said note and mortgage, plus monthly instalments on 22 other note-and-mortgage transactions between the parties and said amount also representing an additional $800 per month to bring the arrearages up to date within one year."
The relief prayed for by Associated in the counterclaim was dismissal of the plaintiff's foreclosure action and recovery of $2,000 damages from the plaintiff for its breach of the oral extension agreement.
The plaintiff demurred to the answer and counterclaim. The grounds stated therein are that the answer does not state a defense and the counterclaim does not state a cause of action. By order dated March 30, 1959, the circuit court sustained the demurrer to both the answer and the counterclaim. Associated has appealed from such order.
Both the defense alleged by Associated in its answer to plaintiff's cause of action for foreclosure, and the cause of action attempted to be alleged in the counterclaim, are grounded upon the oral extension agreement. If it appears upon the face of the answer and counterclaim that such oral extension agreement is void and unenforceable, then such defense and cause of action necessarily fail. While Associated concedes that this is so, it nevertheless contends that in any event the allegation contained in paragraph 3 of the answer states a good defense with respect to that part of the complaint wherein it is sought to enforce personal liability against Associated.
The plaintiff contends that the oral extension agreement alleged in the answer and counterclaim are invalid (1) because of want of consideration; and (2) because of violation of the statute of frauds inasmuch as it was not in writing subscribed by the plaintiff. Being satisfied that such agreement does lack consideration, we find it unnecessary to pass on the statute-of-frauds issue as applied to such extension agreement. However, we are necessarily faced with another statute-of-frauds issue in passing upon the merits of the defense interposed by paragraph 3 of the answer with respect to the asserted personal liability of Associated to pay the mortgage indebtedness.
Validity of the Extension Agreement.
Paragraph 2 of Associated's answer merely alleges that the plaintiff orally agreed to the extension "for valuable consideration." However, paragraph 2 of the counterclaim sets forth that such consideration consisted of Associated's agreeing to make monthly payments of $2,700 per month to cover payments due the plaintiff on the mortgage note and 22 other notes. Such paragraph further alleges that $800 of each of such $2,700 monthly payments covered arrearages already due on such notes so that at the end of one year such arrearages would be brought up to date.
Associated was already obligated to pay such arrearages. Therefore, in agreeing to pay the additional $800 per month to apply on the arrearages of the several notes, Associated was only promising to do something which it was already obligated to do. The promise of payment of a debt already due is not sufficient consideration for a promise of the creditor to forbear or extend time of payment. 1 Williston, Contracts (3d ed.), p. 505, sec. 120; Andrews v. Pfent (1937), 280 Mich. 324, 273 N.W. 585. Therefore, in the instant case the oral extension agreement is void and unenforceable because of want of consideration.
Personal Liability of Associated.
Associated was not an obligor on the original mortgage note, but the complaint alleges that it later accepted a warranty deed conveying the mortgaged premises to it, which deed contained a provision that the grantee assumed and agreed to pay the balance due the plaintiff on the mortgage indebtedness. As a defense to such allegation, paragraph 3 of Associated's answer alleges that such deed was not signed by Associated. This raises an issue of whether such agreement of assumption is not void under the statute of frauds.
This court repeatedly has held under similar fact situations that the acceptance by the grantee of a deed containing such an assumption clause does impose personal liability upon him to pay the mortgage debt. Prudential Ins. Co. v. Clybourn Realty Co. (1934), 214 Wis. 409, 253 N.W. 397; Stites v. Thompson (1898), 98 Wis. 329, 73 N.W. 774; Enos v. Sanger (1897), 96 Wis. 150, 70 N.W. 1069, 37 L.R.A. 862; and Bishop v. Douglass (1870), 25 Wis. 696. However, apparently this court in so holding has not directly passed on the question of whether such an assumption agreement is within the statute of frauds because not embodied in a writing which has been subscribed by the grantee. The general rule in other jurisdictions is that such an agreement is not within the statute of frauds. 37 C.J.S., Frauds, Statute Of, p. 542, sec. 29a.
The grounds on which it is usually urged that such an assumption agreement falls within the statute of frauds are: (1) That it cannot be performed within one year if the maturity of the debt assumed is more than one year in the future with no right of the mortgagor to pay the debt in advance of maturity; and (2) that it constitutes a promise to answer for the debt of another person. The applicable provisions of the Wisconsin statutes are sec. 241.02(1) and sec. 241.02(2).
The consideration for the agreement of Associated to assume and agree to pay the mortgage debt was the transfer to it of the mortgaged property, and moved from the grantor. The grantor performed his part of the agreement coincident to Associated's promise of assumption coming into existence. The majority rule is that, in order for a bilateral contract to violate the one-year provision of the statute of frauds, performance by both parties must extend beyond one year, and not merely performance by one party. Restatement, 1 Contracts, p. 262, sec. 198, and Anno. 6 A.L.R.2d 1053, 1111. Wisconsin is one of the states which follows such majority rule. Mair v. Schultz (1928), 194 Wis. 578, 217 N.W. 328, and Grace v. Lynch (1891), 80 Wis. 166, 49 N.W. 751.
Neither does such an assumption agreement fall within that part of the statute of frauds which requires promises to answer for the debt of another to be in writing and subscribed by the party sought to be charged therewith. The reason for this is well set forth in Herrin v. Abbe (1908), 55 Fla. 769, 774, 46 So. 183, 185, 18 L.R.A. (N.S.) 907, 910, as follows:
"A promise by the purchaser of lands that are subject to a mortgage to assume and pay off the encumbrance as a part of the consideration or purchase price is not required to be in writing because it is not a promise to pay the debt of another, but it is a promise to pay to a third party the debt the grantee owes to the grantor. The fact that in thus paying his own debt the grantee incidentally discharges the debt of his grantor does not bring the promise within the statute of frauds. 20 Cyc. 175, note 86; 29 Am. Eng. Ency. Law (2d ed.), 916, note 1."
See also Hanson v. Knutson Hardware Co. (1924), 182 Wis. 459, 464, 196 N.W. 831.
By the Court. — Order affirmed.