Keller v. Ashford/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, Act Feb 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 re-examined and reversed or affirmed in the supreme court of the United States upon writ of error or appeal.' 20 St. 321. The case is not affected by Act 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 St. 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. diction. Bank v. Daniel, 12 Pet. 32, 52; The Patapsco, 12 Wall. 451; New York El. R. Co. v. Fifth Nat. Bank, 118 U.S. 608, 7 Sup. Ct. Rep. 23; Zeckendorf v. Johnson, 123 U.S. 617, 8 Sup. Ct. Rep. 261. By the express terms of the promissory note used on in this case, it bore interest at the rate of 8 per cent. 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, 9 Sup. Ct. Rep. 508, 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. St. 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 incumbrances now resting thereon, payment of which is assumed by said party of the second part.' 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 incumbrances, and were the only incumbrances existing upon the granted premises at the time of the execution of this conveyance. Rawle, Cov. (5th Ed.) § 77. The clause in question, by the words 'certain incumbrances now resting thereon,' designates and comprehends all those mortgages and taxes as clearly as if the words used had been 'the incumbrances' or 'all incumbrances,' 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 incumbrances' 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 incumbrances 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 indorsements 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 subject to incumbrances, although perhaps not then informed of the amount of the incumbrances, 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 incumbrances, and was requested to pay the plaintiff's mortgage, and declimed to pay it, or to recognize any personal liability for it; yet he afterwards sold and conveyed away two of the lots, and contiu ed 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, Id. 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 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 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. 124. See also Cragin v. Lovell, 109 U.S. 194, 3 Sup. Ct. Rep. 132. 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 appealbond, 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, and not to the mortgagees; and there was no privity of contract between them and Ashford. h e 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 incumbrancers; 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; Id. Amb. 115; Oxford v. Rodney, 14 Ves. 417; 424; In re Engineering Co., 16 Ch. Div. 125; Gandy v. Gandy, 30 Ch. Div. 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, Amb. 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. Abr. 93, pl. 5; Bac. Abr. '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. Bank, 9 Allen, 175; Hampton v. Phipps, 108 U.S. 260, 263, 2 Sup. Ct. Rep. 622. 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 denefit 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 hsare of the debt 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 secustands, at the time of receiving the security, 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 h e 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 N. J. Eq. 74, 563; Crowell v. Currier, 27 N. J. Eq. 152; on appeal, nom. Crowell v. St. Barnabas Hospital, Id. 650; Arnaud v. Grigg, 29 N. J. Eq. 482; Youngs v. Trustees, 31nN. J. 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, Id. 667; Booth v. Insurance Co., 43 Mich. 299, 5 N. W. Rep. 381. 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. 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 bet ween 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 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.' 27 N. J. Eq. 655, 656.

The decisions of this court, cited for the defendant, are not only quiite 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 th release by the mortgagor, of such an agreement, when inserted in the deed by mistake, (Elliott v. Sackett, 108 U.S. 132, 2 Sup. Ct. Rep. 375; Drury v. Hayden, 111 U.S. 223, 4 Sup. Ct. Rep. 405;) 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 to wards the mortgagee, so that the latter, by giving time to the grantee, will discharge the mortgagor, (Shepherd v. May, 115 U.S. 505, 511, 6 Sup. Ct. Rep. 119.) The present case is a strong one for the application of the general doctrine. The land has been sold under a prior mortgage for a sum insufficient to pay that mortgage, leaving nothing to be applied towards 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. Bank v. Seton, 1 Pet. 299; Whiting v. Bank, 13 Pet. 6, Miller v. Thompson, 34 Mich. 10. Decree reversed, and case remanded, with directions to enter a decree for the plaintiff.