Union Mutual Life Insurance Company v. Hanford/Opinion of the Court

Few things have been the subject of more difference of opinion and conflict of decision than the nature and extent of the right of a mortgagee of real estate against a subsequent grantee, who by the terms of the conveyance to him agrees to assume and pay the mortgage.

All agree that the grantee is liable to the grantor, and that, as between them, the grantee is the principal, and the grantor is the surety, for the payment of the mortgage debt. The chief diversity of opinion has been upon the question whether the grantee does or does not assume any direct liability to the mortgagee.

By the settled law of this court, the grantee is not directly liable to the mortgagee at law or in equity; and the only remedy of the mortgagee against the grantee is by bill in equity in the right of the mortgagor and grantor, by virtue of the right in equity of a creditor to avail himself of any security which his debtor holds from a third person for the payment of the debt. Keller v. Ashford, 133 U.S. 610, 10 Sup. Ct. Rep. 494; Willard v. Wood, 135 U.S. 309, 10 Sup. Ct. Rep. 831. In that view of the law there might be difficulties in the way of holding that a person who was under no direct liability to the mortgagee was his principal debtor, and that the only person who was directly liable to him was chargeable as a surety only, and consequently that the mortgagee, by giving time to the person not directly and primarily liable to him, would discharge the only person who was thus liable. Shepherd v. May, 115 U.S. 505, 511, 6 Sup. Ct. Rep. 119; Keller v. Ashford, 133 U.S. 610, 625, 10 Sup. Ct. Rep. 494. But the case at bar does not present itself in that aspect.

The question whether the remedy of the mortgagee against the grantee is at law and in his own right, or in equity and in the right of the mortgagor only, is, as was adjudged in Willard v. Wood, above cited, to be determined by the law of the place where the suit is brought. By the law of Illinois, where the present action was brought, as by the law of New York, and of some other states, the mortgagee may sue at law a grantee who, by the terms of an absolute conveyence from the mortgagor, assumes the payment of the mortgage debt. Dean v. Walker, 107 Ill. 540, 545, 550; Thompson v. Dearborn, Id. 87, 92; Bay v. Williams, 112 Ill. 91; Burr v. Beers, 24 N. Y. 178: Thorp v. Coal Co., 48 N. Y. 253. According to that view, the grantee, as soon as the mortgagee knows of the arrangement, becomes directly and primarily liable to the mortgagee for the debt for which the mortgagor was already liable to the latter; and the relation of the grantee and the grantor towards the mortgagee, as well as between themselves, is thenceforth that of principal and surety for the payment of the mortgage debt. Where such is held to be the relation of the parties, the consequence must follow that any subsequent agreement of the mortgagee with the grantee, without the assent of the grantor, extending the time of payment of the mortgage debt, discharges the grantor from all personal liability for that debt. Calvo v. Davies, 73 N. Y. 211; Bank v. Estate of Waterman, 134 Ill. 461, 467, 29 N. E. Rep. 503.

The case is thus brought within the well-settled and familiar rule that if a creditor, by positive contract with the principal debtor, and without the consent of the surety, extends the time of payment by the principal debtor, he thereby discharges the surety; because the creditor, by so giving time to the principal, puts it out of the power of the surety to consider whether he will have recourse to his remedy against the principal, and because the surety cannot have the same remedy against the principal as he would have had under the original contract; and it is for the surety alone to judge whether his position is altered for the worse. 1 Spence, Eq. Jur. 638; Samuell v. Howarth, 3 Mer. 272; Miller v. Stewart, 9 Wheat. 680, 703. The rule applies whenever the creditor gives time to the principal, knowing of the relation of principal and surety, although he did not know of that relation at the time of the original contract, (Ewin v. Lancaster, 6 Best & S. 571; Financial Corp. v. Overend, L. R. 7 Ch. App. 142, and L. R. 7 H. L. 348; Wheat v. Kendall, 6 N. H. 504; Guild v. Butler, 127 Mass. 386;) or even if that relation has been created since that time, (Oakeley v. Pasheller, 4 Clark & F. 207, 233, 10 Bligh, N. S. 548, 590; Colgrove v. Tallman, 67 N. Y. 95; Smith v. Shelden, 35 Mich. 42.)

In the case at bar, the mortgagee, immediately after the absolute conveyance by the mortgagors, was informed of and assented to that conveyance and the agreement of the grantee to pay the mortgage debt, and afterwards received interest on the debt from the grantee; and the subsequent agreement by which the mortgagee, in consideration of the payment of a sum of money by the grantee, extended the time of payment of the debt, was made without the knowledge or assent of the mortgagors. Under the law of Illinois, which governs this case, the mortgagors were thereby discharged from all personal liability on the notes, and the circuit court rightly refused to enter a deficiency decree against them.

Decree affirmed.