Hoeldtke v. Horstman

HODGES, Associate Justice.

— This is the second appeal in this litigation; the former is reported in 117 S. W., 217. The suit was originally instituted by Hoeldtke, one of the plaintiffs in error, against B. S. McCleary and L. C. Hill, seeking a recovery on a promissory note and the foreclosure of a vendor’s lien against a tract of 57 acres of land, for which the note was a part of the purchase price. Leach, the other plaintiff in error, was made a party defendant upon the ground that he held a note for $175 which was also a lien against the same tract of land. In the course of this opinion Hoeldtke and Leach will be referred to as plaintiffs, and Hill and McCleary as defendants.

The facts show that some time prior to 1905 the land in controversy was sold to B. S. McCleary, one of the defendants, by Horstman. The consideration for the conveyance consisted in part of two notes, one for $175, the one now held by Leach, and another for $140 after-wards held by J. E. McCleary, a brother of the vendee. McCleary was also to assume a note for $690 held by plaintiff Hoeldtke, the one sued on in this action. All of these notes recited the reservation 1 of the usual vendor’s lien against the land. In October, 1906, B. S. McCleary, grantee in the above conveyance, sold and conveyed the same land to the defendant, Hill. The consideration for this transfer was in part some personal property conveyed by Hill to McCleary, and the assumption by Hill of the payment of the note for $175 now held by Leach, and the one for $690 owned by Hoeldtke. A vendor’s lien in favor of McCleary to secure the payment of these notes was retained in the deed. In addition to McCleary’s interest in this land, Hill also got in this deal, McCleary’s personal notes for about $500 secured by a chattel mortgage, and two other notes held by the latter for something over $200. McCleary being unable to meet his indebtedness to Hill, on July 11, 1907, they made another contract evidenced by the following written instrument: “Honey Grove, Texas, July 11, 1907. The following agreement is this day made between L. C. Hill and L. T. McCleary as follows, effective this day. L. C. Hill agrees to surrender two notes against said McCleary amounting with interest to $512; also assumes rents now due and to give McCleary an equity of $307 in land deeded him by McCleary last fall, at which time $615 equity was traded to Hill and in return McCleary surrenders to Hill the confectionery business fixtures, stock and all effects in the business known as the L. T. McCleary confectionery, except his accounts. L. T. McCleary does not assume any obligations other than above stated, except taxes for 1907; each party agrees to pay taxes on property acquired by this exchange, McCleary to have rents from the land for the year 1907.” Hill also executed a deed reconveying the land to McCleary, in which was the following recitation: “Know all men that I, L. C. Hill of Fannin County, Texas, in consideration of $1500 paid by B. S. McCleary as follows: $307.50 cash in hand paid, the receipt of which is acknowledged, and the further consideration of B. S. McCleary assuming the payment of four certain vendor lien notes, two of said notes for the sum of $175,” etc. The deed then recites a consideration just as that in the former deed from McCleary to Hill. All of the above described notes except the L. C. Hill $307.50 note, bearing eight percent interest per annum, interest payable annually as it accrues, with ten percent attorney’s fees if placed in the hands of an attorney for collection. It is expressly agreed and stipulated that a vendor’s lien is retained against the property, premises and improvements, until the notes and all interest thereon are fully paid. There is some dispute about the delivery of this deed and its acceptance by McCleary. The jury, however, found that it had been delivered.

The case was submitted to a jury upon special issues, and in response to the questions propounded they found the following facts: That Hoeldtke and Leach accepted the promise of Hill to pay the notes held by them, as shown by McCleary’s deed to Hill of October 16, 1906, that Hill did not know of this acceptance prior to July 11, 1907, the date when Hill and McCleary entered into the second contract above mentioned; that McCleary received and accepted from Hill the deed of July 13, 1907, reconveying the land to McCleary; that in making the first contract, McCleary had represented to Hill that the note for $140, payable to Horstman and referred to in the deed from Horstman to McCleary,-had been paid, that Hill knew nothing to the contrary, and relied upon those representations. Upon these findings the court rendered a personal judgment in favor of.Hoeldtke and Leach against B. S. McCleary, and for the amount of their notes, and ordered a foreclosure of their liens against the land; but discharged Hill from any personal liability for any of the obligations formerly assumed by him in the trade with McCleary. From the judgment in favor of Hill, this writ of error is prosecuted by both Hoeldtke and Leach.

The first assignment of error complains of the refusal of the court to enter a personal judgment against Hill in favor of the plaintiffs, upon the answers returned by the jury. Inasmuch as we think the case should be disposed of upon this assignment, it will be necessary for us to refer to the pleadings of Hill and review at some length the facts upon which his defense rests. Hill claims exemption from personal liability on the two notes sued on, upon two grounds: (1) That he was ignorant of the acceptance by the plaintiffs of his promised assumption of these notes till after he had reconveyed the land to Mc-Cleary on July 13, 1907, in accordance with an agreement made two days before that time, and had obtained a release by McCleary’s re-assumption of these debts; (2) that if he was not relieved of personal liability by that transaction,-he was entitled to a rescission of the original contract on account of a fraud perpetrated by McCleary in representing to him that the note for $140, in which a vendor’s lien was reserved against the land, had been paid, when in truth and in fact it had not, but was still an outstanding encumbrance on the property purchased by him. The foregoing, though less specific than the pleadings, contains the substance of Hill’s special defenses. Considering these in their order, the first inquiry will be as to the status occupied by Hill when he assumed the payment of the notes held by the plaintiffs, when he accepted the conveyance from McCleary. That he thereby became primarily liable as an original promisor, had his status remained unchanged by any reassumption of the payment of the same debts by McCleary, in the second contract, is a proposition about which there is practically no dispute, and one which is abundantly sustained by authorities. Huffman v. Western Mortgage Co., 13 Texas Civ. App., 169, 36 S. W., 306; Keller v. Ashford, 133 U. S., 610; Union, etc., Co. v. Handford, 143 U. S., 187; Johns v. Wilson, 180 U. S., 440; 1 Jones on Mortgages, secs. 763-764; 2 Warvelle on Vendors, sec. 644 et seq. See also this case on former appeal, 117 S. W., 217. But the fact that McCleary in the deed to him' from Hill, of date. July 13, 1907, did reassume the payment of the same debts, is relied upon as exonerating Hill from his personal liability. While there is some question as to the sufficiency of the evidence to sustain the finding of the jury that McCleary accepted this deed from Hill, and that there was such a delivery as completed the transfer of title. for the purposes of this discussion we will treat the finding of the jury as having settled that issue in favor of a delivery. The question then is, did McCleary and Hill have the right, without the concurrence of Hoeldtke and Leach, to release Hill from, this obligation, or to enter into a new contract between themselves alone which would legally have that effect? In other words, does the contract of the grantee of mortgaged property, who assumes as a part of the consideration of his purchase a prior debt due from his grantor, after the mortgagee has assented to, or accepted the new promise, become irrevocable without the consent of the mortgagee? The following authorities, we think, support the affirmative of that proposition: Starbird v. Cranston, 24 Colo., 20, 48 Pac. 652; Haas v. Dudley, 30 Ore. 355, 48 Pac. 168; Gifford v. Corrigan, 117 N. Y., 257, 6 L. R. A., 610; 15 Am. St., 524; First Nat’l Bank v. Chalmers, 144 N. Y., 432, 39 N. E., 331; Iowa Loan & T. Co. v. Schnose, 19 S. D., 248, 9 Am. & Eng. Cases Ann., 255; Boissac v. Downs, 16 La. Ann., 187; Stockton v. Gould, 149 Pa. St., 68, 24 Atl. 160; Willard v. Worsham, 76 Va., 392; Fields v. Thistle, 58 N. J. Eq. 339, 43 Atl., 1072; 27 Cyc. 1360, and cases cited; 3 Pomeroy Eq. Jur. secs. 1206-7. The courts are not in harmony as to the principle upon which this liability should be justified. Some of the earlier decisions are disposed to treat the assumption as a contract of indemnity made for the benefit of the mortgagor, of which the mortgagee may avail himself by right of subrogation, and that his remedy may be enforced only through an equitable proceeding. The majority of the later adjudications, and the. text writers as well, regard such an undertaking as a contract made for the benefit of the mortgagee, upon which he may sue the grantee directly at law; that when assented to by the mortgagee the contract of assumption partakes somewhat of the nature of a novation. The rationale of the latter doctrine is thus stated by Mr. Pomeroy, in the last section above referred to: “The ground of 'the grantee’s liability adopted by the courts of a large majority of the States is that of contract. It is an application of the general doctrine, so widely prevailing in this country that it may properly be called an American doctrine, — where A makes a promise directly to B, for the benefit of C, upon a consideration moving alone from B, C, being the party beneficially interested, may treat the promise as though made to himself, and may maintain an action at law upon it in his own name against A, the promisor. According to this generally accepted view, the liability of the grantee who thus assumes the payment of an outstanding mortgage, does not depend upon any extension of the equitable doctrine concerning subrogation; it is strictly legal, arising out of a contract binding at law; the mortgagee, instead of enforcing the liability by a suit in equity for a foreclosure, may maintain an action at law against the grantee upon his promise, and recover a personal judgment for the whole mortgage debt.” The courts of Hew Jersey are conspicuous for adhering to, if not for having originated in this country, the doctrine of subrogation as the basis of the mortgagee’s right to sue the subsequent purchaser under such conditions. In the case of Fields v. Thistle, cited above, the action was on a “bill for deficiency,” in which it was sought to recover a personal judgment against one who had assumed the payment of a prior mortgage debt, for the amount remaining unsatisfied after the sale of the mortgaged property. The mortgage had been foreclosed in another proceeding, and between that time and the institution of this action, an effort was made by the mortgagor to release his vendee. It was held that this could not then be done, the court saying: “Bringing an action to foreclose and claim therein for deficiency is such an adoption of the covenant by the mortgagee as terminates the right of release.” In this connection the language used by the New York court in Gifford v. Corrigan becomes forceful . and pertinent: “Is this release, thus executed, a defense to this action?

. . . My judgment leads me to answer that question in the negative. Of course it is difficult, if not impossible, to reason about it without recurring to Lawrence v. Fox, 20 N. Y. 268, and ascertaining the principle upon which its doctrine is founded. That is a difficult task, especially for one whose doubts are only dissipated by its authority, and becomes more difficult when the number and variety of its alleged foundations are considered. But whichever of them may ultimately prevail, I am convinced that they all involve, as a logical consequence, the irrevocable character of the contract after the creditor has accepted and adopted it, and in some manner acted upon it. The prevailing opinion in that case rested the creditor’s right upon the broad proposition that the promise was made for his benefit, and therefore he might sue upon it, although privy neither to the contract nor its consideration. That. view of it necessarily involves an acquisition at some moment of' time of the right of action which he is permitted to enforce. If it be possible to say that he does not acquire it at the moment when the promise for his benefit is made, it must be that he obtains it when it has come to his knowledge, and he has assented to and acted upon it; for he may sue. That is decided, and is conceded. If he may sue, he must at that moment have a vested right of action. If it was not obtained earlier, it must have vested in him at the moment when his action was commenced; so that the right and the remedy were born at the same instant. But there is no especial magic in a lawsuit. If it serves for the first time -to originate the right which it seeks to enforce, it can only be because the act of bringing it shows unequivocally, that the promise of the grantee has come to the knowledge of the plaintiff; that the latter has accepted. and adopted it; that he intends to enforce it for his own benefit, and gives notice of that intention to the adversary. From that moment he must be assumed to act or omit to act, in reliance upon it. But, if all these things occur before a suit commenced, why do they not equally vest the right of action in the assignee? What more does the mere lawsuit accomplish ? And so the contract between grantor and grantee, if revocable earlier, ceases to be so when by his assent to it, and adoption of it, the creditor brings himself into privity with it, and elects to avail himself of it, and must be assumed to have governed his conduct accordingly. I see no escape from that conclusion.” In a still later case, Bank v. Chalmers, supra, the same tribunal says: “Wherever th.e facts show that the debtor has transferred or delivered to the promisor, for his own use and benefit, money or property in consideration of the latter’s agreement to assume and pay the outstanding debt, and he thereupon has promised the creditor to pay, that promise is original, upon the ground that, by the acceptance of the fund or property under an agreement to assume and pay the debt, the promisor has made that debt his own, has become primarily liable for its discharge, and has assumed an independent duty of payment, irrespective of the liability of the principal debtor. Ackley v. Parmenter, 98 N. Y. 425, 50 Am. R, 693; White v. Rintoul, 108 N. Y., 223, 15 N. E., 318.” In the case of Spann v. Cochran, 63 Texas, 240, the facts involved resulted from a transaction much like the one in the case here under consideration. One- of the parties sought to be held liable as having assumed the preexisting mortgage debt had not signed any written obligation to that effect, and he relied upon the statute of frauds as a defense. The court said: “It thus appears that, at the time Cochran & Ewing acquired the interest of Watson in the co-partnership property, they obligated themselves to pay the debts or liabilities, and this, as the chief consideration on which the sale by Watson was based. It, however, does not appear that Spann was a party to that contract; nor that the instrument by which the obligation of Cochran & Ewing to pay the debt due to Spann, is claimed to have been fixed was signed by them. It is believed, however, that such an agreement between a debtor and a third person, made upon valuable consideration, gives to the creditor a cause of action on which he may sue and recover from the person who has so contracted to pay to him a debt originally due only by the person to whom the promise is made. This seems to be in accordance with the great weight of American authority.” In addition to the foregoing, we refer to the following Texas cases: Mich. S. L. Asso. v. Atterbury, 16 Texas Civ. App., 222, 42 S. W., 569, writ of error refused; Baptist Book Concern v. Hendricks Estate, 46 S. W., 859; Gay v. Pomberton, 44 S. W., 400; Beital v. Dobbin, 44 S. W., 299; Ward v. Green, 28 S. W., 574; Schneider v. Roo, 25 S. W., 58. See also, 3 Paige on Contracts, sec. 1314, and authorities cited in notes. So far as our investigation has been extended, all of the cases where this question has been involved concede that the promise of the grantee becomes irrevocable when the mortgagee has in some manner acted upon it, with the exception of two, one in California and the other in Mew Jersey. Biddel v. Brizzolara, 64 Cal., 354; Laing’s Exrs. v. Byrne, 34 N. J. Eq. 52. These, however, have become so isolated by the subsequent trend of American adjudications, that they may now be regarded as being without weight as judicial authority upon this question. Certainly it may be said that they are at present almost, if not entirely, alone in espousing the doctrine which distinguishes them from the great body of judicial opinions. In those eases where it is held, if the mortgagee has in some manner acted upon the promise of the grantee, that the liability of the latter becomes fixed, it is not claimed that this action must be such as would create an estoppel against the grantee. It seems to be sufficient if it is such as to evince an acceptance, or an adoption of the promise by the'mortgagee. If this be the true view, then it follows, irresistibly, that the grantee can not thereafter relieve himself of his assumed obligation without the consent of the creditor whose assent fixed his status. This would seem to be in accord with the general principles governing the rights of contracting parties.. When Hill purchased this land from McCleary, he, in effect, held back that portion of the consideration which was due to Hoeldtke and Leach from the purchase price. This he undertook to pay to them, or to the holders of the notes, not to benefit McCleary, but in order to discharge an encumbrance against the property which he had purchased, and as a part of the consideration. We do not think it was essential in order to fix the liability of Hill that he should have received actual notice of the plaintiffs’ assent to, or acceptance of his promise made for their benefit. When he accepted the deed from McCleary containing the recitation of his assumption of those outstanding obligations, it was an unconditional promise upon his part to pay those notes according to their terms. It was not a mere offer by him to make a contract, but an absolute contractual undertaking. In accepting his promise the holders of the notes added nothing to the burden of his obligation, nor would their refusal or failure to accept have relieved him of any burden. Hill was bound to know that his promise, if of any value, might and probably would be assented to and relied upon by those creditors as an additional security.

But it was not necessary to call in the aid of the principle discussed unless it appears from the contract between McCleary and Hill, that the latter was to be released from his assumption of the notes sued on. We do not think it clear, by any means, that the contract is susceptible of that construction. In their negotiations, in the contract itself, and in the testimony relating to it, the interest of McCleary in the land is referred to as an “equity” of the estimated value of $615, and it is this equity which was conveyed to Hill. In the contract for the reconveyance from Hill to McCleary in July, 1907, made at the time he claims to have been released, Hill “agrees to surrender two of the notes against McCleary, amounting, with interest, to $512; also assumes rent now due (on house occupied by McCleary), and to give McCleary an equity of $307 in the land deeded him by McCleary last fall, at which time a $650 equity was traded to Hill.” etc. The language of the deed which followed this contract is consistent with the foregoing expressions, and shows that Hill was to get from McCleary a note, for $307.50, representing the difference between the value of the equity which he (Hill) had purchased, and that which McCleary was to get back, - as a part of the consideration for the second exchange of property. The deed from Hill also retains a vendor’s lien in his favor to secure the payment of the notes mentioned, all of which McCleary thereby agreed to pay, and among which are the notes here sued on. The contract and deed do not support the contention that they compose a transaction amounting to a mere rescission of the first contract, and in legal effect operate as a release of Hill from his assumed obligation. The last conveyance puts Hill in the attitude of a vendor selling the property back to McCleary, not merely returning it as a cancellation of a former contract. He also seeks to protect himself by the reservation of a lien, not only against default in the payment of the portion of the consideration which he was to get, but that also which he had formerly assumed to pay to Hoeldtke and Leach. He binds himself by a clause of general warranty. These provisions are wholly inconsistent with any apparent purpose of rescission, and show no attempt to release Hill from his assumed obligations. We think if Hill is to be relieved from present personal liability, his release must rest upon the fact that McCleary himself reassumed the debt. But if we are correct in concluding that Hill’s promise was not revocable after the assent and acceptance of his creditors, McCleary’s reassumption of those debts was no more effective in releasing him, than would thé promise of any other party who had agreed to assume those debts as a part of the purchase price of the land. We have reached the conclusion that Hill was not released from his assumed obligations by the second contract of conveyance between him and McCleary.

The next question is, was Hill- entitled to immunity on account of any fraud perpetrated by McCleary in representing to him that the note for $140 outstanding as a lien against the land had been paid? This note was offered in evidence on the trial by the defendant Hill, and shows upon its face that it was not due till December, 1907,— more than a year after his purchase from McCleary. To give full effect to the findings of the jury we must accept as proved the following facts. That McCleary represented to Hill that this note had been satisfied; that Hill knew nothing to the contrary till after the institution of this suit, and relied upon those representations in making his purchase of the land. The jury also returned a single negative answer to the following: “Did McCleary take up the $140 note according to his promise to Hill, if he made any such promise, and did said McCleary cause to be executed a release of said note according t.o his promise and agreement with Hill?” The materiality of the misrepresentations, and the question of fraud on the part of McCleary in making them, were not submitted to the jury. If the state of the evidence was such as to justify it, we would be compelled to assume that the court himself determined those issues in a manner to support the judgment rendered. The burden of proof is upon the party seeking to rescind a contract, or relieve himself of some contractual liability, on account of the fraud of another, to clearly prove the fraud relied upon or the circumstances from it should be presumed. 2 Warvelle on Vendors, see. 843. The testimony relative to this note for $140 shows that J. E. McCleary, a brother of the defendant B. S. McCleary, residing in the state of Oklahoma, owned it at the time of the conveyance to Hill, in October, 1906; that he purchased it in 1901 or 1902 and turned it over to the defendant, B. S. McCleary, or sent it to him by mail, about 1906, when the latter was on the trade with Hill; that J. E. McCleary never placed the note with any one for collection. J. E. McCleary also stated that he sent the note to his brother, B. S. Mc-Cleary, in response to a request, but did not know whether the trade had been made with Hill at that time or not. He took up the note to help his brother, and did not expect to get his money out of the land. B. S. McCleary wrote to him to send the note, and he did so for the purpose of its being canceled. The defendant, B. S. McCleary, testified that he did not tell Hill that the note had been paid off at the time they made their trade, hut that it was outstanding and he would take it up; that his brother, J. E. McCleary, owned the note; that in a few days after making the trade with Hill he wrote to his brother and got the note within a short time; he then turned it over to another brother, Charley McCleary, to be put with his papers in the bank. Hill testified that about February 1, 1908, after this suit was filed, Charley McCleary told him about the note. He says: “He (Charley.McCleary) simply told me that Ernest (J. E. McCleary) had a note for $140 against this land, and that it would have to be adjusted by some one. He did not demand of me payment of the note.” Hill further stated that no one claimed payment from him, and that while he owned the land nothing was said to him about it. There was other testimony tending to show that Charley McCleary had, or thought he had, the note for collection about February 1, 1908, and took some steps in that direction, but did nothing definite, and subsequently sent the note to his brother in Oklahoma. On February 14, 1908, the defendant, Hill, filed his amended original answer, in which he for the first time set up the alleged fraudulent representations of B. S. Mc-Cleary regarding payment of the note, and asked for a rescission of the original contract. Within a few days thereafter, and before trial, a written release was executed by J. E. McCleary, dated February 25, 1908, and which was on the trial offered in evidence. •

The foregoing are the facts relied upon to show the fraud charged as the ground of Hill’s release of personal liability on his contract assuming the Hoeldtke and Leach notes. In our opinion they are insufficient. At most, the note for $140, if it was not paid as represented by McCleary, could affect Hill only as an encumbrance upon the land while he owned it. According to Hill’s contention, and the finding of the jury which he insists is supported by the evidence, his title to the land has passed back to McCleary, the man upon whom rested the duty of "paying the note in the first instance; and in this suit, where the rights of the different lienholders are to be adjusted, no claim has been urged in behalf of any holder of that note. On the contrary, it is conclusively shown that it has been released, so that it can no longer be an encumbrance on the land. Redfearn v. Craig, 57 S. C., 534, 35 S. E., 1024. We think the court should have rendered judgment against Hill in favor of the plaintiffs upon the answers returned, and that for this refusal the judgment must be reversed.

This is the second appeal of this case, and there is nothing in the record to indicate the necessity for going through another trial in order to settle any issue of fact essential to a proper disposition of the case. Judgment will therefore be here rendered for the plaintiffs against Hill, personally, for the amount sued for.

Reversed and rendered.