Opinion
14325
July 3, 1936.
Before DENNIS, J., Darlington, March, 1934. Reversed as to appellant, case remanded for entry of judgment in his favor, and affirmed in other respects.
Action by the First Carolinas Joint Stock Land Bank of Columbia against Ollie W. Windham, Fannie Windham, W.J. DuBose, and others, in which defendants Windham filed a cross-complaint against defendant DuBose. From a decree for plaintiff against named defendants, defendant DuBose appeals.
The decree of Judge Dennis is as follows:
This is an action for the foreclosure of a mortgage of the defendant Ollie W. Windham to the plaintiff for $3,000.00 given to secure a note of the said Windham to the plaintiff for $3,000.00 bearing date November 16, 1923, with interest on the whole amount remaining from time to time unpaid at the rate of 6 per cent. per annum payable semiannually, both principal and interest being payable on an amortization plan in sixty-six semiannual installments commencing on the 1st day of November, 1924, and continuing semiannually until paid in full, the sixty-five first installments being for $105.00 each and the sixty-sixth for $87.56, any installment not paid when due to bear interest thereafter until paid at the rate of 8 per cent. per annum, which said note was secured by a mortgage on three tracts of land in Lamar township, in the County of Darlington and State of South Carolina, of 43, 50, and 30 acres, respectively, described in paragraph 5 of the complaint. The said mortgage providing for a reasonable attorney's fee not to exceed 10 per cent. of the amount unpaid in case of foreclosure. That on May 1, 1931, there remained due on said note and mortgage the sum of $2,743.71 with interest from May 1, 1931, at 6 per cent. per annum and 2 per cent. additional on delinquent semiannual installments. That on December 31, 1928, the defendant Ollie W. Windham sold and conveyed to his codefendant, Fannie M. Windham, the mortgaged premises, together with another tract of 40 acres, for the consideration of $5.00 and the assumption and agreement to pay the note secured by the mortgage of Ollie W. Windham to the plaintiff and the further assumption and agreement to pay a certain mortgage indebtedness of $5,300.00 of the defendant Ollie W. Windham to his codefendant, W.J. DuBose. That thereafter on April 8, 1931, the defendants Ollie W. Windham and Fannie M. Windham sold and conveyed the 43-acre tract of land described in the mortgage of the defendant Ollie W. Windham to the plaintiff to their codefendant, W.J. DuBose, for the consideration expressed in the deed of $3,000.00, but for the real consideration as testified to by the defendants Ollie W. Windham and Fannie M. Windham, and admitted by the defendant W.J. DuBose of the assumption by the said W.J. DuBose to pay the note and mortgage of the defendant Ollie W. Windham to the plaintiff.
In his answer the defendant W.J. DuBose alleges that his codefendant, Ollie W. Windham, conveyed to him certain lands consisting of two tracts of 40 and 43 acres, respectively; that at the time that the said conveyance was made he held a second mortgage of the defendant O.W. Windham on the 43-acre tract and a first mortgage on the 40-acre tract and accepted said conveyance under a verbal agreement with Ollie W. Windham that he would receive the same in full satisfaction of the indebtedness secured by the mortgage of O.W. Windham to him, would pay the unpaid and remaining installments due and to become due on the mortgage held by the plaintiff as described in the complaint. He stated in his testimony that the defendant Ollie W. Windham became dissatisfied with the transaction and that he thereupon reconveyed the said land to his codefendant, the latter agreeing to thereafter make the payments due the plaintiff on the first mortgage and to relieve the defendant W.J. DuBose from his verbal agreement to make such payments. That he had made no agreement with the plaintiff or for its benefit and that he is therefore not liable to the plaintiff under the terms of the mortgage described in the complaint or by virtue of any assumption of liability of the indebtedness evidenced thereby and denies all of the allegations of the complaint which are in conflict with the above and asks that as to him the complaint be dismissed.
That by an amended answer thereafter filed he denied that he had made any promise to the plaintiff to answer for the debt or default of the defendants Ollie W. Windham and Fannie M. Windham, and that the alleged obligation or promise on his part to pay said debt to the plaintiff is an obligation or promise to answer for the debt or default of another and there is no writing in existence signed by him assuming said obligation and making said promise and he relies upon the applicable provisions of the statute of frauds.
The defendants Ollie W. Windham and Fannie M. Windham in their answer and cross-complaint admit the truth of all of the allegations contained in the complaint and deny all and singular the allegations of the answer of the defendant W.J. DuBose, which are in conflict with their answer and cross-complaint and allege that they adopt as a part of their cross-complaint the allegations contained in Paragraphs 1 to 14, both inclusive, of the plaintiff's complaint. That when the 1931 spring payment was due to the plaintiff the defendant Fannie M. Windham was not in position to pay the same and in order to get the money to make the payment she contracted and expressly agreed with the defendant W.J. DuBose for him to make the payment due them and to assume the payment of all future installments on plaintiff's bond and mortgage and conveyed the 43-acre tract to the said W.J. DuBose in order to save the remaining part of her land consisting in the aggregate of 80 acres. That she and her codefendant, Ollie W. Windham, were unable to read or write and have not sufficient legal understanding to realize the full significance of legal transactions and when the next installment was due and the defendant W.J. DuBose tendered to Ollie W. Windham a reconveyance of the 43-acre tract of land neither the defendant Ollie W. Windham, nor Fannie M. Windham understood that they relieved the said W.J. DuBose of his obligation and express contract to pay all future installments on plaintiff's mortgage and neither of said defendants agreed to accept said reconveyance with the understanding that the defendant W.J. DuBose was to be relieved of his legal liability to pay the indebtedness secured by the plaintiff's mortgage and at said time their financial position was such that they could not have paid the installment then due or any future installments, and allege further that they are willing and desire to reconvey to the defendant DuBose the 43-acre tract of land which he had attempted to convey to them by his deed dated December 28, 1931, and that the defendant DuBose is under contract to pay the indebtedness secured by plaintiff's mortgage and should be ordered to specifically perform said contract. That if he fails or refuses to carry out the terms of said contract the defendant Fannie M. Windham will lose her two tracts of land consisting of 80 acres to her damage in the sum of $3,000.00.
It is admitted by all parties that the defendant O.W. Windham conveyed the mortgaged property to his codefendant, Fannie M. Windham, for the consideration of her assumption of the mortgage debt and that thereafter the defendants O.W. Windham and Fannie M. Windham conveyed the 43-acre tract of the mortgaged premises to their codefendant, W.J. DuBose, for the consideration of his assuming and agreeing to pay the mortgage debt of the defendants Ollie W. Windham and Fannie M. Windham to the plaintiff. The defendant DuBose contends that he conveyed the 43-acre tract to his codefendants, O.W. Windham and Fannie M. Windham, for the consideration of their releasing him from his assumption of the mortgage debt and agreement to pay the same and that in consideration of said conveyance they reassumed the payment of said debt. The defendant Fannie M. Windham alleges that she knew nothing about the deed from her codefendant, DuBose, to her husband and herself.
There is no dispute as to the facts as between the plaintiff and the defendants. The defendant DuBose, however, in addition to denying responsibility to his codefendants also denies that he is responsible for any part of the mortgage debt to the plaintiff upon two grounds: First, upon the ground that no part of the agreement to assume payment to the plaintiff was in writing and being a contract to answer for the debt or default of another is not binding upon him under the statute of frauds; and, second, that the contract whereby he assumed payment of said mortgage debt was made between him and his codefendants, Ollie W. Windham and Fannie M. Windham, as a part of the consideration for the conveyance of the premises which were embraced in the mortgage securing said debt, and this agreement between him and the two Windhams having been rescinded by a reconveyance of the said 43-acre tract of land to them and a reassumption of the mortgage debt on their part that he is under no obligation to the plaintiff to pay said debt.
I shall first take up and dispose of the plea of the statute of frauds. In 19 R.C.L., at page 381, § 152, under mortgages it is said: "An agreement of assumption may be wholly outside of the conveyance. It is valid, though not sealed; and a covenant in the deed that the premises are free from encumbrances, or a recital that the consideration has been paid in full, does not estop either the grantor or the holder of the mortgage from proving the agreement of assumption and recovering on it. Furthermore, though there is some authority to the contrary, an oral promise of assumption made to the grantor at the time of the conveyance is sufficient and may be enforced in equity by the grantor or the holder of the mortgage; the promise is independent of the deed and not contradictory thereof nor merged therein. It is not within the provisions of the Statute of Frauds prohibiting proof by parol of a contract not to be performed within one year, or to answer for the debt or default of another."
In the case of Groce v. Jenkins, 28 S.C. 172, 5 S.E., 352, 354, Mr. Justice McGowan in writing the unanimous opinion of the Court uses this language: "In 1 Jones, Mortg., § 750, it is said: `Even a verbal promise by a purchaser to assume and pay a mortgage is valid, and may be enforced in equity not only by the grantor, but by the holder of the mortgage. * * * The assumption of the payment may be proved by parol evidence, although the deed to the purchaser contains covenants of warranty, and makes no mention of the mortgage, or is simply subject to it.'"
In the case of Allgood v. Spearman et al., 125 S.C. 131, 118 S.E., 189, where Spearman had made a mortgage to plaintiff's testate and afterwards conveyed the mortgaged premises to one Sheck, who entered into an oral agreement with Spearman that he, Sheck, assumed the payment of the mortgage debt as a part of the consideration for the mortgaged premises. In the action to foreclose the mortgage by Allgood, the administrator of the mortgagee, it was held that the oral agreement to assume payment of the mortgage debt was binding upon Sheck in favor of the mortgagee. These two authorities from our own Court are so conclusive on this point that I deem it unnecessary to cite further authorities.
The second contention of the defendant DuBose that the contract assuming the payment of the mortgage debt entered into between him and the defendants Ollie W. Windham and Fannie M. Windham was not binding as between him and the plaintiff after the reconveyance of the land to the Windhams with the alleged agreement that they were to reassume the payment of the mortgage debt cannot be sustained.
In 19 R.C.L., at pages 374, 375, § 145, it is said: "Though there is authority to the contrary the decisions hold almost unanimously that a grantee of premises in assuming a mortgage thereon renders himself liable for the discharge of the mortgage debt, not only to the mortgagor, but also directly to the mortgagee."
And in the same volume, at page 377, § 147, it is said: "A mortgagee certainly cannot object to the release from liability of a grantee of the mortgaged premises who has assumed the mortgage where the assumption was obtained through fraud, or the provisions therefor were inserted in the deed by mistake. But in the absence of fraud or mistake the Court differs as to the right of the grantor to release the grantee from his assumption without the consent of the mortgagee. Some authorities proceed on the theory that the promise of the grantee to pay of itself and without acceptance by the mortgagee invests the grantee with an immediate interest and right, as though the promise had been made with him, and, therefore, hold that the grantor cannot release the grantee without the consent of the mortgagee. Certainly after notice and acceptance by the mortgagee of the assumption, he becomes a party to the agreement intended for his benefit and the agreement cannot be released by the grantor. And it would seem unnecessary for the mortgagee to give to the grantee notice of acceptance."
There are, however, two lines of authorities on this point, one holding that prior to notice to the mortgagee that the grantee of the mortgagor has assumed the mortgage debt that by an agreement between the mortgagor and his grantee without the consent of the mortgagee, the agreement may be rescinded, and another line of authorities which holds that the agreement when entered into by the mortgagor and his grantee immediately enures to the benefit of the mortgagee and that the agreement cannot be rescinded without his consent. But the two lines of authorities are easily distinguished. In the first place, as laid down by our Court in the case of South Carolina Insurance Company v. Kohn et al., 108 S.C. 475, 480, 95 S.E., 65, 66, it is said: "Recovery is allowed in such cases generally on one of two principles, namely, upon the theory of equitable subrogation, or upon the theory that the promise having been made for his benefit, the mortgagee may sue directly upon it. "The prevailing rule in the United States is that where a grantee of mortgaged premises has agreed with the vendor to assume the mortgage, the mortgagee may recover against him, either in law or in equity. Such recovery is allowed generally on one of two principles, namely, upon the theory of equitable subrogation, or upon the theory that the promise having been made for his benefit, the mortgagee may sue upon it." 20 Ency. L. (2d Ed.), 992."
The line of authorities holding that the assumption of the mortgage debt by the grantee of the mortgagor may be rescinded by the mortgagor is followed in those cases where the recovery is allowed upon the theory of equitable subrogation, it being held in such cases that the promise of the grantee is made to his grantor, and not to the mortgagee, and that the latter has no interest in the promise until he assents to and relies upon it, or that the promise of the grantee is in the nature of an indemnity to the mortgagor which enures to the benefit of the mortgagee upon the equitable principle that whatever security one obligated to pay a debt holds for that debt, by equitable subrogation becomes security to the creditor, and when that security is released by the obligor before suit is brought and before the obligation is recognized by the obligor there is nothing to which the obligee can be subrogated. This doctrine is known as the English doctrine. There is, however, another doctrine prevailing generally in America that a promise made by the grantee of the mortgagor enures immediately to the benefit of the mortgagee upon the theory that such a promise is one made by one person for the benefit of another and immediately enures to the benefit of such third person, and the right to sue is vested in him by force of the agreement itself. In those states where the doctrine of equitable subrogation is held, the view is taken that the purchaser may be released by the mortgagor without the consent of the mortgagee before he has notice of such assumption, but in cases where the rule prevails that a contract or release entered into between the mortgagor and his grantee is a contract made for the benefit of the mortgagee and immediately enures to him, it is held that there can be no release without the consent of the mortgagee.
In 1 Jones on Mortg., § 763, it is said: "Whether the grantor can deprive the mortgagee of the benefit of a covenant made by the grantee who had assumed the payment of the mortgage will in large measure depend upon the ground upon which the mortgagee is allowed to take advantage of such covenant. On the one hand, if this covenant be regarded as an agreement of indemnity against the mortgage debt which the mortgagee may avail himself of by way of equitable subrogation, the grantor and his purchaser may at any time before the filing of a bill to foreclose the mortgage extend the liability as between themselves, by a reconveyance of the property; and as the contract of indemnity is thus put an end to by the act of the parties to it, there is then no right to which the mortgagee can be subrogated."
And in Section 763-A of the same work, it is said: "But in States where the covenant of the purchaser to assume an existing mortgage is regarded as a promise for the benefit of the mortgagee, the promise has been regarded as irrevocable."
In our own case of South Carolina Insurance Company v. Kohn et al., 108 S.C. 475, 95 S.E., 65, it is held that the doctrine of liability to the mortgagee of the grantee of a mortgagor assuming the mortgage debt does not rest upon the principle of subrogation, but on the rule that the promise enures to the benefit of the person for whose benefit it was made, and the right to sue is vested in him by force of the agreement itself. The syllabus to this case reads as follows: "A contract on the part of the grantee to assume prior mortgages on the property purchased is shown by the acceptance of a deed reciting such assumption" and that "the grantee of realty is liable, upon the contract embraced in his deed whereby he agreed to assume the mortgages he contracted to assume, whether or not his grantee was liable therefore, the doctrine of liability not resting on the principle of subrogation, but on the rule that one for whose benefit a promise is made to another can maintain an action thereon."
And in 1 Jones on Mortg., § 764, it is said: "Where the conveyance is absolute to the grantee his assumption of an existing mortgage creates against him an absolute obligation for its payment, and a release of this obligation cannot be made by the grantor without the consent of the mortgagee. The acceptance on the part of the mortgagee of the benefit of the assumption is a legal presumption, in the absence of proof of his actual dissent."
In addition to this, the attorney for the defendant DuBose admits in argument of the case that after the contract assuming the mortgage debt had been made by him in April, 1931, on demand from plaintiff he paid the May installment of $105.00 principal and interest, and upon the November 1, 1931, payment becoming due the representative of the plaintiff again saw him and requested payment of that semiannual installment, thereby showing that it not only had notice of the contract of assumption on the part of the defendant DuBose, but that it assented to the said contract before the reconveyance from DuBose to O.W. and Fannie M. Windham.
In 41 C.J., at page 726, § 772, under mortgages, it is said: "To make the grantee personally liable to the mortgagee it is necessary that the former's assumption of the mortgage should have been accepted or ratified by the latter. But such acceptance need not be formal or expressed and it is sufficiently manifested by bringing suit against the grantee or a proceeding to foreclose in which a personal judgment against him is demanded, or by accepting payments of interest and of principal from the grantee on account of the mortgage debt." (Italics mine.) And this doctrine is recognized in the case of Smith v. Kibbe, 104 Kan., 159, 178 P., 427, 429, 5 A.L.R., at page 486, where it is said: "It is argued that there was no acceptance or ratification of the assumption of the mortgage debt by the owner of it, and that the testator could not be regarded as the debtor of the owner until there was an acceptance by him. It appears that the owner of the debt recognized the testator as a debtor, inasmuch as he accepted from Smith payments of interest, as well as a small part of principal. It was optional with the holder of the debt to accept payment from the testator and the executor of his estate or to rely on the mortgaged proprety for payment of the debt. There was an obligation by the testator to his grantors to pay the debt, and upon an acceptance by the owner of the debt a liability of the testator arose in favor of the owner also. It then became a personal liability of the testator which the owner could enforce at his option."
On the strength of these authorities I must overrule this contention of the defendant DuBose. In other words, when DuBose agreed with O.W. Windham and Fannie M. Windham to pay the mortgage debt to the plaintiff and made a payment to plaintiff, his contract was with the Windhams for the benefit of the plaintiff and was as binding on him in favor of the plaintiff as if he had made the contract with it directly.
I find that all of the allegations of the plaintiff's complaint are true except the allegation that the defendant G.W. Parnell has some interest in the mortgaged premises. At the time of the commencement of the action, there was a judgment open of record of G.W. Parnell against the defendant O.W. Windham, which has since been marked satisfied; that the defendants Fannie M. Windham and W. J. DuBose, both having agreed to pay the mortgage debt of the defendant O.W. Windham to the plaintiff, which were contracts made by Fannie M. Windham with Ollie W. Windham and by Fannie M. Windham and Ollie W. Windham with their codefendant, W.J. DuBose, for the benefit of the plaintiff, I find and hold that the defendants Fannie M. Windham, O.W. Windham, and W.J. DuBose are each responsible to the plaintiff for the amount of the mortgage debt with interest and costs in the order named, the mortgaged premises being first liable therefore.
It is therefore ordered, adjudged, and decreed that the plaintiff have judgment against the defendants Fannie M. Windham, O.W. Windham, and W.J. DuBose for the amount of $3,221.08, being the amount of principal and interest to February 15, 1934, with interest thereafter at the legal rate, together with $250.00 as attorney's fee, which I find is a reasonable fee for plaintiff's attorney, making a total of $3,471.08, principal and interest and attorney's fee.
In regard to the claim of Fannie M. Windham and Ollie W. Windham against W.J. DuBose I find that the defendants Fannie M. Windham and Ollie W. Windham have not made out a case against their codefendant, W.J. DuBose, under which they may require him to accept a reconveyance of the 43-acre tract and by paying the plaintiff's mortgage relieve the remaining 80 acres of the mortgage encumbrance. It appears to me that, although the evidence supports the making of a contract between the Windhams and DuBose in the first instance along the lines of that setup by the Windhams, this contract in so far as Ollie W. Windham and Fannie M. Windham were concerned was rescinded by mutual agreement and by the restoration to the Windhams of the equity in the property that they had conveyed to Mr. DuBose as the foundation and consideration of such agreement.
The agreement in question was oral. It was carried out by the conveyance of the 43-acre tract to Mr. DuBose. When this 43-acre tract was reconveyed to Mr. and Mrs. Windham and the conveyance accepted by them and the property farmed by them as their own, the transaction was effectually rescinded in so far as they were concerned, and the circumstances point unerringly to the correctness of the testimony of Mr. DuBose that the reconveyance was made and the original agreement on his part mutually rescinded to conform to the wishes of Mrs. Windham and her husband.
I am satisfied and find as a fact that there was no fraud or overreaching on the part of Mr. DuBose and that there is nothing in the testimony to warrant this Court in requiring Mr. DuBose to relieve the 80-acre tract of the mortgage encumbrance or to render him liable in damages to the Windhams for his failure and refusal so to do.
It is further ordered, adjudged, and decreed that the three tracts of land described in the complaint and hereinafter described be sold separately by the Judge of Probate for Darlington County in front of the Courthouse door at Darlington, in the County of Darlington and State of South Carolina, after due and legal advertisement, on sales day in April, 1934, or on some convenient sales day thereafter to be named by the plaintiff's attorney for one-fourth cash and the balance to be paid in three equal annual installments to be evidenced by the bond of the purchaser secured by a first mortgage on the premises, the purchaser or purchasers to pay for all papers and revenue stamps. That the Judge of Probate do require the successful bidder to deposit with him immediately after the sale 5 per cent. either in cash or certified check as earnest money or evidence of good faith, the same to be applied on the bid should there be a compliance with same, but should there be a failure to do so without legal excuse then it shall be forfeited to the plaintiff to be applied on the mortgage debt and the premises resold on the same or some convenient sales day thereafter on the same terms and at such bidder's risk without further order of this Court and so from time to time thereafter until a compliance shall be secured. That the said Judge of Probate upon the payment of the purchase price do execute to the purchaser or purchasers a deed or deeds for the premises and that the purchaser or purchasers be let into possession of same on production of said deed or deeds. That from the proceeds of said sale the Judge of Probate shall pay.
(1) All taxes constituting a lien upon the mortgaged premises.
(2) The costs and expenses of this action and of the sale.
(3) The mortgage debt, including attorney's fee, due the plaintiff by the defendants Ollie W. Windham, Fannie M. Windham, and W.J. DuBose of $3,471.08.
It is further ordered, adjudged, and decreed that the defendant DuBose should he become the purchaser of the mortgaged premises shall have thirty days after the filing of this decree or after the rendition of the decision of the Supreme Court (if an appeal should be taken) within which to pay up the back taxes and accrued installments due the plaintiff with the right upon such payments being made to continue discharging the mortgage in accordance with its terms, provided he should be also required to pay all Court costs, costs of sale, and attorney's fees within said thirty days.
It is further ordered, adjudged, and decreed that the defendants and each of them be forever barred and foreclosed of all right, title, and equity of redemption of, in, or to the mortgaged premises or any part thereof.
It is further ordered, adjudged and decreed that the order heretofore granted by this Court appointing C.E. Byrd Receiver for the mortgaged premises be continued in effect for the balance of 1934 or until the further order of this Court.
It is further ordered, adjudged, and decreed that the Judge of Probate shall file a report of his actings and doings, receipts, and disbursements, under this decree with all convenient speed.
The following is a description of the mortgaged premises hereinbefore mentioned and ordered to be sold:
All those three certain tracts or parcels of land situate, lying and being in Lamar Township, Darlington County, State of South Carolina, bounded and described as follows, to wit:
First tract: All that certain tract of land containing 50 acres, more or less, bounded on the north by lands of W.A. Windham; on the east by lands of W.A. Windham and Newman Swamp; on the south by Newman Swamp, and west by lands of T.G. Freeman and W.A. Windham. Being the same tract of land conveyed by W.A. Windham and C.W. Windham to O.W. Windham by deed dated January 5, 1918, and recorded in the office of Clerk of Court for Darlington County in Deed Book 138, at page 230, and also:
Second tract: All that certain tract of land containing 30 acres, more or less, bounded on the north by lands of estate of T.W. Jordan; on the east by the confluence of Sparrow Swamp and Newman Swamp; on the south by lands of W.A. Windham, and on the west by lands of J.W. Freeman and C.W. Windham. Being the same tract of land conveyed by C.W. Windham to O.W. Windham by deed dated January 5, 1920, and recorded in said office in Deed Book 138, at page 229, and:
Also: Third tract: All that certain tract of land containing 43 acres, more or less, bounded on the north by lands of C.W. Windham and estate of J.D. Hutson; on the east by lands of W.M. Windham and estate of J.D. Hutson; on the south by lands of Manley Watford, and on the west by lands of the estate of J.D. Hutson. Being the same tract of land conveyed by J.E. Windham to O.W. Windham by deed dated October 28, 1912, and recorded in said office in Deed Book 75, at page 782.
Messrs. Samuel Want and Adrian A. Spears, for appellant, cite: Liability of mortgagors grantee to mortgagee for indebtedness: 21 A.L.R., 429; 47 A.L.R., 339; 76 A.L.R., 1191; 33 S.C. 324; 11 S.E., 1077; 108 S.C. 475; 95 S.E., 65; 125 S.C. 131; 118 S.E., 189. As to rights of third parties for whose benefit contracts have been made: 21 A.L.R., 462; 47 A.L.R., 342; 384 S.W. 739; 47 A.L.R., 332; 53 A.L.R., 178; 81 A.L.R., 1292. Novation: 138 S.C. 10; 135 S.E., 646; 149 S.C. 386; 147 S.E., 449.
Mr. Jas. R. Coggeshall, for respondent, cites: Right of beneficiary of contract of assumption to sue: 108 S.C. 483; 125 S.C. 131; 131 S.C. 171; 19 R.C.L., 374; 28 S.C. 172; 24 N.Y., 170; 27 Am. Rep., 5; 105 N.Y., 223; 14 F., 70; 76 Va., 392. Assumption clause in deed: 24 Colo., 20; 48 P., 652.
July 3, 1936. The opinion of the Court was delivered by
During the year, 1923, O.W. Windham obtained a loan from the respondent on its regular thirty-three-year amortization plan, which provided that the failure to make any payment when due would cause the full amount to become payable at once upon the option of the mortgagee. This loan was secured by a mortgage on three tracts of land containing 123 acres, one of which contained 43 acres, and for convenience will be referred to as "Tract A." About two years later Windham executed to W.J. DuBose a purchase-money mortgage for $5,200.00 on a 40-acre tract that day bought from DuBose, and included therein as additional security "Tract A." About a month thereafter Windham for the express consideration of $5.00 and assumption of mortgage indebtedness conveyed all of his property to his wife, Fannie. In 1931, O.W. Windham and Fannie, his wife, sold and conveyed by usual deed "Tract A" to W.J. DuBose for the express consideration of $3,000.00, the actual consideration being an agreement by W.J. DuBose to pay the notes and mortgage of O.W. Windham to respondent as the payments became due. About eight months thereafter, in December of 1931, DuBose reconveyed "Tract A" to Fannie and Ollie Windham upon the agreement that the contract of assumption theretofore agreed upon be rescinded.
Respondent in February, 1932, brought an action against Ollie and Fannie Windham, W.J. DuBose, and others, and alleged that under the agreement between W.J. DuBose and Windham, he, DuBose, had assumed the payment of the debt from Ollie Windham to respondent and was liable to it for any deficiency. Fannie and Ollie Windham by cross-answer claimed certain rights against DuBose, alleged fraud and damages, and sought recovery on their own part also against him. All of these matters between the Windhams and DuBose have been adjudicated by a finding of the Circuit Judge favorable to DuBose, as has also been concluded by the same decree the contention of DuBose that his agreement was within the Statute of Frauds, there having been no appeal from such holding by any party in interest. The record also discloses that there has been a settlement betwixt the Windhams and DuBose in relation to all land transactions, and the 40-acre tract (not connected with the lands going to make up the 123 acres mortgaged to respondent) has been reconveyed by the Windhams to DuBose.
Accordingly, the questions presented to this Court are, first, whether an agreement between grantor and grantee whereby the grantee assumes payment of an existing mortgage debt on the property conveyed can be by such original parties rescinded before acceptance by the mortgagee; and, second, whether in this particular case there has been such acceptance on the part of the mortgagee.
A more detail statement could serve no useful purpose in a determination of the two questions presented, one of fact and the other of law.
The only evidence presented on the part of the respondent to show an acceptance on its part is to the effect that one of the installments being delinquent after the deed to DuBose, its agent called upon Windham for the payment, and Windham advised the respondent of the conveyance to DuBose and advised taking up the matter with DuBose, who made the payment. Thereafter, when an installment again became delinquent respondent again demanded payment of Windham, and when the agent went to DuBose at the request of Windham the second time, the agent was advised that he, DuBose, would make no further payments and expected to reconvey the property to the Windhams and settle any claim against him. The fact that respondent, after receipt of one payment by DuBose, gave DuBose no notice of other payments, and in no manner dealt with him concerning the contract, and, upon the happening of another delinquency, again called on Windham and took up with DuBose at his request when he was advised of the agreement to reconvey, shows that it refused to accept the agreement between Windham and DuBose, and received the one payment from DuBose as a payment in Windham's behalf, and not originally as a claim against DuBose. After the conveyance back by DuBose, and in 1932, without the appointment of a receiver or any notice to DuBose, the agent of the respondent took charge of the property and had the Windhams execute to it a rent contract for the year 1932. The actual conduct of the respondent is conclusive that there was no acceptance by it.
This leaves for consideration the legal issue first stated. While this Court has held in numerous cases and it is the settled law of this jurisdiction, that one assuming by grant the existing liens against the grantor is held to such agreement in the absence of contractual relations with the lien holder or mortgagee, such decisions will be found to have always revolved about a situation where the original mortgagor and grantor had never released the grantee who assumed the debt. Such is true of South Carolina Insurance Company v. Kohn, 108 S.C. 475, 95 S.E., 65, and in fact all other decisions in our jurisdiction. Here the mortgagor (grantor) and grantee have formally rescinded their agreement, and the original mortgagee has not only failed to accept such agreement, but has failed, after notice of its existence, to recognize it until after its rescission.
While there is a conflict of authority in the jurisdictions elsewhere, the better reason and the greater weight of authority is that such an agreement to assume a debt is binding between the grantor and grantee from the moment of its execution, but inures to the benefit of the mortgagee only after his acceptance. As the grantor continues liable to the mortgagee regardless of his agreement with the grantee, unless by the mortgagee released, there can be little advantage to him until concluding a contract with the mortgagee releasing him, and this is particularly true in these long time loans that extend beyond the life expectancy of the usual borrower; the future financial worth of any one over such a length of time is a most doubtful business security. The agreement is beyond the security, is originally between grantor and grantee, and when these two original parties rescinded their agreement no damages can possibly be sustained by the mortgagee unless he has by contract, expressed or implied, bound the grantee to the payment. It was not his contract, he paid nor received any consideration, nor was he a party to it, and he may greatly prefer the original borrower as the occupant of the farm. As said in Shult v. Doyle, 200 Iowa, 1, 201 N.W., 787, 790, cited in 47 A.L.R., 344, note:
"The cause of action thus created in his favor is a bit of legal grace; it cost him nothing; it simply fell upon him, without effort or knowledge on his part. He is entitled to it, such as it is. He has no ground for appeal to equity either to expand it or to prevent its shrinkage."
"Release by grantor. (a) Before acceptance by mortgagee." "In the majority of jurisdictions it is held that a contract between a mortgagor and his grantee, whereby the latter assumes and agrees to pay the mortgage debt, may be rescinded at any time before the mortgagee has accepted the agreement or asserted his rights thereunder." Note 21 A.L.R., 462, citing a number of cases from California, Indiana, Kentucky, Minnesota, New Jersey, and New York.
"The assumption contract may be rescinded, or the grantee released therefrom by the mortgagor, so long as the mortgagee has done nothing to show his adoption of the contract or his acceptance of the grantee as the principal debtor. After the mortgagee has accepted or adopted the contract, or acted on the faith of it, the rule followed in the great majority of states is that it is not in the power of the parties, as against the rights of the mortgagee, and in the absence of his consent thereto, to change or annul it. An acceptance of, or acting upon, the assumption agreement by the mortgagee, precluding its rescission by the parties thereto, is evidenced by the bringing of an action on the agreement by the mortgagee, but not by his acceptance of a payment of interest on the mortgage by the grantee." (Italics added.) 41 C.J., 749, § 815.
"Where the vendee as part consideration for land agrees to pay a mortgage thereon the promise is for the benefit of the mortgagee, but it may be rescinded by the parties who made it at any time before the mortgagee has asserted any rights thereunder." Note 40 L.R.A. (N.S.), 674; Jones v. Higgins, 80 Ky., 409; Colvin v. Newell, 8 Ky. Law Rep., 959.
This is the rule in Indiana: Berkshire Life Ins. Co. v. Hutchings, 100 Ind., 496, holding that while the relation between the mortgagor and the grantee who has assumed and agreed to pay the mortgage debt, remains unchanged by acceptance by the mortgagee, the relations between the mortgagor and grantee may be terminated by a bona fide rescission of their contract, and the case then becomes the same as if no contract ever existed, and in such event the right of the mortgagee as against the grantee will no longer exist.
And see Huffman v. Western Mortg. Investment Co., 13 Tex. Civ. App. 169, 36 S.W. 306, holding that "where the parties to a conveyance of land rescind the conveyance, a contemporaneous release by the grantor of the grantee upon his agreement to pay a mortgage upon the land is valid as against the mortgagee, who has not yet accepted the grantee as his debtor." Note 40 L.R.A. (N.S.), 675.
"On the theory that it is a general rule of chancery that, as to strangers to a contract, parties may at their pleasure abandon it and mutually release each other from its performance, it has been held that the grantee of land is not liable upon his promise to assume and pay a mortgage upon the land, where the grantor and grantee thereafter, rescind the conveyance, including such agreement, before any action by the mortgagee has been commenced to foreclose the mortgage. Biddel v. Brizzolara, 64 Cal., 354, 30 P., 609." Note 40 L.R.A. (N.S.), 675.
In Gold v. Ogden (1895), 61 Minn., 88, 63 N.W., 266, a release of a grantee in whose name a deed from a mortgagor containing a contract of assumption had been made without his knowledge or consent was upheld, it not appearing that the mortgagee had accepted or acted on the covenant in any manner. Note 21 A.L.R., 464.
"According to the weight of authority, the parties to a contract entered into for the benefit of a third person may rescind, vary or abrogate the contract as they see fit, without the assent of the third person, at any time before the contract is accepted, adopted or acted upon by him."
Note 81 A.L.R., 1292, and citing Annotations in 21 A.L.R., 439, 47 A.L.R., 339, 53 A.L.R., 178, and various decisions.
For the reason stated, the decree is reversed in so far as it affects the appellant W.J. DuBose, and the case remanded for the entry of judgment in his favor with costs. In all other respects it is affirmed.
MESSRS. JUSTICE BONHAM and FISHBURNE concur.
MR. CHIEF JUSTICE STABLER and MR. ACTING ASSOCIATE JUSTICE C.J. RAMAGE dissent.
MR. JUSTICE CARTER did not participate.
For the reason stated by his Honor, Judge Dennis, in his decree, which will be reported, I think the judgment of the Circuit Court should be affirmed.
MR. ACTING ASSOCIATE JUSTICE RAMAGE concurs.