Opinion
No. 5191.
November 29, 1929.
APPEAL from the District Court of the Eleventh Judicial District, for Twin Falls County. Hon. Hugh A. Baker, Judge.
Action for debt evidenced by promissory note. Judgment for plaintiff. Affirmed.
Sweeley Sweeley, for Appellant.
As regards the liability of the purchaser to the mortgagee, the distinction must always be borne in mind between a purchase subject to a mortgage and one by which the purchaser assumes the payment of the mortgage debt. A purchase subject to a mortgage does not impose a personal liability to pay the mortgage debt.
"There is a broad and obvious distinction in the effect thereof upon the rights of the parties between the taking of mortgaged property subject to a mortgage subsisting thereon at the time of such taking and the assumption or agreement by the grantee to pay the debt secured by such mortgage, in that where the purchaser or grantee of the mortgaged property takes it subject to the mortgage only, there being no express or implied agreement to assume the mortgage debt, he is bound only to the extent of the property, but if the debt be assumed by the grantee he becomes the principal debtor." (Jones on Mortgages, 7th ed., sec. 751; Roberts v. Fitzallen, 120 Cal. 482, 52 Pac. 818; Brichetto v. Raney, 76 Cal.App. 232, 245 P. 235.)
The note in suit was secured by a second mortgage on the land, and at the time it was taken, the value of the equity thus mortgaged was worth $3,000. At the time the note in suit matured that equity was worth $2,600. Respondent took no action to enforce his mortgage or to realize on his security. That security was lost through his neglect, and he cannot maintain this action. (C. S., sec. 6949; First Nat. Bank v. Williams, 2 Idaho 670 (676), 23 P. 552; Rein v. Callaway, 7 Idaho 634, 65 Pac. 63; Clark v. Paddock, 24 Idaho 142, 132 P. 795, 46 L.R.A., N.S., 475; Winters v. Hub Mining Co., 57 Fed. 287; Brown v. Willis, 67 Cal. 235, 7 P. 682; Barbieri v. Ramelli, 84 Cal. 154, 23 P. 1086; Hibernia Savings etc. Soc. v. Thornton, 109 Cal. 427, 50 Am. St. 52, 42 P. 447; Biddel v. Brizzolara, 64 Cal. 354, 30 P. 609; McKean v. German American Sav. Bank, 118 Cal. 334, 50 P. 656.)
Harry Benoit and L.A. Warner, for Respondent.
"A grantee who has assumed and agreed to pay the mortgage debt, either by covenant in his deed or because of a deduction or retention from the purchase money, to discharge the encumbrance, according to the rule now generally accepted in the United States, incurs a personal liability to the mortgagee which may be enforced in some form by the mortgagee against him." (41 C. J. 743.)
"Where the mortgage debt forms a part of the consideration of the purchase, although the purchaser has not entered into any contract to pay it, he is bound to that extent to indemnify the debtor who is subrogated to all the rights of the mortgagee in the security, and, similarly if the property is sold subject to the mortgage, although the purchaser has not assumed or agreed to pay it, he is, as to the mortgage, the principal debtor." ( Lamka v. Donnely, 163 Iowa, 255, 143 N.W. 869; Wood v. Smith, 51 Iowa, 156, 50 N.W. 581; 1 Jones on Mortgages, par. 751.)
"The general rule that a mortgage and note given to secure the payment of the same debt must be construed together as one contract, is reinforced by Section 4520 of the Revised Codes of this State." ( Clark v. Paddock, 24 Idaho 142, 151, 132 P. 795, 46 L.R.A., N.S., 475.)
Edward L. Brackett and wife executed a first mortgage on land owned by them, and later a second mortgage to secure the payment of three notes for $500 each. The second mortgage contained the recital that it was "subject to a certain first mortgage" of $2,400. The property was purchased from the Bracketts by appellant, and the instrument of conveyance contained the statement — "this deed is subject to a mortgage of $2400 . . . . also to a mortgage of $1500 . . . ." The agreed purchase price was $5,400, and, deducting therefrom the amount of the two mortgages, appellant paid to the vendors the sum of $1,500. The first mortgage was foreclosed against the property, and, no redemption being made, sheriff's deed issued to the mortgagee. Appellant repurchased the property from the holder of the sheriff's deed, and was the owner of the same at the time of the trial herein.
Respondent is the transferee of one of the $500 notes executed by the Bracketts in connection with the giving of the second mortgage on the property, and brought this action to recover upon said note, his cause of action as to a right of recovery against appellant being upon the theory that appellant, as part of the purchase price when he bought the property from the Bracketts, had assumed and agreed to pay the first and second mortgages, and the property having been sold in satisfaction of the first mortgage the security for the note in suit had been exhausted and appellant was subject to personal liability for the amount of the note, it representing a part of the unpaid purchase price of the property.
It was and is the contention of appellant — he having appealed from judgment in favor of respondent — that he did not assume and agree to pay the mortgages; and further, that the note in suit having been secured it was the duty of respondent to realize upon that security upon the maturity of the note and before foreclosure of the first mortgage, and not having done so the security was lost through his fault and neglect and the maker of the note or appellant could not be held personally liable.
It appears beyond question, from a consideration of the transaction involving the purchase of the land by appellant from the Bracketts, that it was intended that appellant assume the debt arising from the first and second mortgages. If not expressly so agreed, as testified to by Brackett, such intention may be derived from the warranty deed and implied from the facts and circumstances under which the purchase was made. While the recital in the deed that it was subject to the two mortgages would not be sufficient to fix appellant's liability for the payment of the note herein sued upon, the deed in another respect may be considered in connection with other facts and circumstances as showing at least an implied agreement on the part of appellant to assume the payment of the amount in controversy. ( Siekman v. Moler, 47 Idaho 446, 276 P. 309.) The agreed purchase price of the property as recited in the conveyance was $5,400, and appellant paid the Bracketts $1,500, leaving a balance of $3,900, the amounts of the two mortgages. Asked upon cross-examination if he were buying the property for $1,500, appellant answered, "No, not exactly; it was subject to two mortgages." It is clear from the transaction that appellant retained from the purchase price the amounts of the mortgages and thereby assumed the payment of the same and became personally liable for those debts. (2 Jones on Mortgages, 7th ed., 169; 3 R. C. L. Supp. 938; 41 C. J. 743, 744; 27 Cyc. 1349, 1354; Lamka v. Donnely, 163 Iowa, 255, 143 N.W. 869; Bristol Sav. Bank v. Stiger, 86 Iowa, 344, 53 N.W. 265; Hopkins v. Warner, 109 Cal. 133, 41 P. 868; Interstate Land Inv. Co. v. Logan, 196 Ala. 196, 72 So. 36, 38; Ray v. Lobdell, 213 Ill. 389, 72 N.E. 1076; Brosseau v. Lowy, 209 Ill. 405, 70 N.E. 901;0 Roberts v. Fitzallen, 120 Cal. 482, 52 P. 818; Rockwell v. Blair Sav. Bank, 31 Neb. 128, 47 N.W. 641.)
Appellant ascribes to respondent the duty to have proceeded upon the maturity of his obligation to realize upon it by foreclosure of the second mortgage instead of allowing the security to be exhausted by foreclosure of the first mortgage. Under C. S., sec. 6949, recourse to the general assets of the debtor cannot be had until the security for the debt has been exhausted without the fault of the person having a mortgage lien thereon, or the same has become valueless. ( Clark v. Paddock, 24 Idaho 142, 152, 132 P. 795, 46 L.R.A., N.S., 475.) Foreclosure of the first mortgage did exhaust the security — there was no redemption and a sheriff's deed issued — and we cannot say that failure of respondent to act against the security before the foreclosure of the prior lien imputed negligence on his part, or that thereby the security was lost through his fault. The security having been exhausted, appellant became personally liable for that portion of the purchase price of the land represented by the note held by respondent, and the present action for such recovery was not improper under the circumstances. (See 18 Cal. Jur., sec. 533, pp. 249, 250; Ferry v. Fisk, 54 Cal.App. 763, 202 Pac. 964; Savings Bank v. Central Market Co., 122 Cal. 28, 54 Pac. 273.)
The mortgage and note are to be construed as one contract, both provided for attorney fees, and allowance of such was not error. Likewise, it was permissible to charge interest on the note at the rate therein provided.
The judgment is affirmed. Costs to respondent.
Givens, T. Bailey Lee, Wm. E. Lee and Varian, JJ., concur.