4 P.2d 703 | Mont. | 1931
On the authority of sections 8202, 8201 and 8188, Revised Codes of 1921, as interpreted by this court in Kinyon Inv. Co.
v. Belmont State Bank,
There remains for consideration under this point the requirement that the new agreement be in all respects a valid and binding contract, particularly that it be supported by a sufficient consideration. The contract is entirely in writing. A written instrument presumes a sufficient consideration to support it, and the burden of establishing the contrary rests upon the party who asserts that the consideration is wanting. Plaintiff association has not pleaded in any manner that there is no consideration sufficient to support this writing; the issue of want of consideration is, therefore, in nowise tendered or raised.
Under sections 7512 and 7513, Revised Codes of 1921, it is uniformly held that the mere allegation or production of a contract *406
in writing is sufficient to establish the existence of the consideration upon which it is founded. With equal uniformity it is also held, particularly under section 7513, supra, that the burden which rests upon the party who would invalidate or avoid the contract means that he must affirmatively set up the defense of no consideration in his pleading and support it in his proof, if he would avail himself of it. In other words, an allegation of the consideration supporting a written contract being no part of the proponent's case it is new matter for his adversary, if the fact be that the contract is a mere nudum pactum; and if it be new matter the party who asserts it must of course plead it and prove it. (See 1 Bancroft's Code Pleadings, 966; 21 Cal. Jur. 138; United States Nat. Bank v. Chappel,
However, an analysis of the terms of the supplemental agreement carries the conviction that not one, but several sufficient considerations within the meaning of the law of this state are to be found within its four corners, enough in any case to meet the test of section 7503, Revised Codes of 1921. If a peppercorn, an arrowhead or an English farthing be a sufficient consideration to support the most solemn undertakings known to the common law short of the covenants of a sealed instrument, if a promise given is a good and sufficient consideration to support a promise taken, then there is no solid ground upon which it can be argued here that the agreement of November 28, 1925, between the respondent association and Mr. Mains is not founded upon such a consideration as will make its terms binding on both parties.
Since plaintiff released a part of its security, viz., the gross rentals from the mortgaged premises, it may in no *407
event have a deficiency judgment over against the appellant. The foundation of this argument is, of course, the familiar rule that there is "but one action for the recovery of debt, or the enforcement of any right secured by mortgage upon real estate or personal property," and that only if the proceeds from the sale of the mortgaged property are insufficient may the creditor have a judgment for the deficiency "against the defendant or defendants personally liable for the debt." (Sec. 9467, Rev. Codes 1921.) (See Woodward v. Brown,
It was the rule once that the obligation of the surety wasstrictissimi juris, and he was discharged by any alterations of the contract to which his guaranty applied, whether material or not, and the courts would not inquire whether it was or was not to his injury. In the case of Dodd v. Vucovich,
"In order that a surety on a contract may be discharged from liability thereon by an agreement altering its terms between the principal and the obligee, such agreement, except in case where the agreement is by way of alteration of the original instrument, must be binding upon the parties, based upon a sufficient consideration, and such as would be valid defense by the principal debtor to an action on the original contract." (50 C.J. 119.) This principle of law is well illustrated in the case ofStockyards Nat. Bank v. Bragg,
In answer to the claim of defendant that the agreement of November 28, 1925, diminished the security as to the payment of rentals and profits from the building, we submit that, even if the agreement did effect and modify the terms of the mortgage, the outcome in this respect would be identical, for if the mortgagee under the forfeiture clause in the mortgage, or under the assignment of rentals, took possession of the premises and collected all the rentals and profits therefrom it would have to pay operating expenses and could only apply the net proceeds toward discharge of the debt, and this is identically what the purchaser would do if he complied with the covenants complained of in the agreement in question. He would apply the net proceeds from the premises towards the discharge of the debt. Therefore, even assuming that the defendant's contentions are correct and that the agreement can so be construed that the clause in question *409 operates upon the clause in the mortgage for the collection of rentals on default, and upon the assignment of rentals, there would be no harm done for the reason that said clause would not in any respect be modified. The final results would be the same and the net proceeds from the rentals and profits from the premises would be applicable toward the discharge of the debt in question. There would be no material alteration. However, it is our contention that this agreement cannot be given this construction.
Appellant contends that the original mortgage was altered by the agreement of November 28, 1925, in that in case of default by D.F. Mains he was to deliver to the mortgagee a good and sufficient deed for the mortgaged premises, and deliver possession thereof and that no such provision in any form whether express or implied, existed in the original paper. Our answer to this is that in the first place this provision did not in any way relate to the violation of the terms of the original mortgage. And furthermore, if such had been the intention of the parties, such a provision would have been unenforceable. "All contracts for the forfeiture of property subject to a lien, in satisfaction of the obligation secured thereby, and all contracts in restraint of the right of redemption from a lien are void." (Sec. 8230, Rev. Codes 1921.) However, it may be contended by appellant that this is a new agreement based upon a new consideration and therefore a valid contract. Respondent does not concede a consideration ever passed for the execution of this agreement. This is, however, immaterial. It is said in 42 C.J., at p. 348: "For reasons of equity embodied in the maxim, once a mortgage always a mortgage, and of public policy sometimes evidenced by statute, a stipulation in a mortgage or equivalent instrument, or in contemporaneous collateral agreement, or even in a subsequent executory agreement, waiving the equity of redemption in advance agreeing that the forfeiture shall become absolute upon breach of condition, is invalid." As to a subsequent agreement it is only common sense to state that if such an agreement is intended as an alteration of the terms *410
of the original instrument, the parties in contracting are bound by the same inhibitions that they would be bound by in the original instrument. Otherwise, the parties could by subterfuge avoid the very force of the statute, and by executing a subsequent agreement, waive the right of redemption and agree by an enforceable contract to forfeit the property. But the courts will not permit such a subterfuge. (Holden Land Livestock Co.
v. Interstate Trading Co., (1912)
It is urged that inasmuch as the contract of November 28, 1925, was in writing, the same is to be presumed to be based upon a consideration; granted; nevertheless, such presumption may be rebutted by direct or indirect evidence. (Sec. 10604, Rev. Codes 1921.) Such presumption is not binding where the true consideration is shown to be void. (Doorley v. Goodman,
Aside from the foregoing, it has been already shown that part of the consideration for the execution of the agreement of November 28, 1925 (if given the construction sought by appellant), was forbidden by statute, viz.: the forfeiture of the property by Mains, this alone permeates the whole contract and renders it invalid and unenforceable. "If any part of a single consideration for one or more objects, or of several considerations for a single object, is unlawful, the entire contract is void." (Sec. 7506, Rev. Codes 1921; Hughes v.Mullins,
The mortgagor also executed an instrument, referred to in the transcript as Exhibit "B," reciting that the Billrel Company, Inc., "hereby sells, assigns and transfers" to the association all the rents and revenue derived from the property mortgaged "during such time as the mortgage indebtedness, $27,500, held by it upon said real estate shall remain unpaid," and was "authorized to appoint such agent or agents as it may desire for the purpose of collecting said rents at any time while the said indebtedness remains unpaid."
This instrument was acknowledged, and it and the mortgage were filed for record together. On March 25, 1924, Billrel Company conveyed the mortgaged property to Robert E. Burns, hereafter called the defendant, who assumed and agreed to pay the mortgage debt, less such payments as had been made thereon. On February 21, 1925, Burns conveyed the property to Seeman, who assumed and agreed to pay the mortgage debt, and he in turn, on May 28, 1925, sold the same to D.F. Mains, who assumed and agreed to pay the mortgage debt, less payments which had been made thereon.
During the time defendant was the owner of the property he paid each monthly installment of $351.39 until December, 1924, when, with the consent of plaintiff, he passed the payment for that month; this he paid later on. *413
In November, 1925, Mains was largely in arrears; for a number of months he had not paid over $200 a month and he had not paid the last half of the 1924 taxes. On November 28, 1925, without the knowledge or consent of the defendant, Mains and the plaintiff entered into an agreement to the following effect: "That in lieu of plaintiff paying and advancing the last half of the 1924 taxes covering" the mortgaged property "amounting to $640.09 and all of the 1925 taxes on the same property amounting to $1,212.73, or a total amount of $1,852.83," Mains agreed to give plaintiff a chattel mortgage covering all of the furniture, furnishings and fittings in the building and to execute a note for $1,852.83 "to run for two years from date at the rate of 7% straight interest from such date until fully paid, provided, however, that no default is made in the present loan of $27,500 on the above described premises which is secured by a real estate mortgage, * * * which loan is now assumed by D.F. Mains who agrees to pay the said United States Building Loan Assn. all rents and profits from said building during the term of this agreement, less, however, the actual operating expense of the building."
It was agreed that Mains might pay $100 or more to apply on the $1,852.83 note at any time during the life of the agreement, or might pay the same in full at any time before maturity. Then follows this concluding paragraph: "It is further agreed by and between the parties hereto that in case the party of the second part falls down on his agreement to turn over all of the net income from the apartment building located on the above described premises, or in any event fails to pay in to the party of the first part at least $200 per month to apply on the original loan of $27,500 on said premises, then he (D.F. Mains) is to deliver a good and sufficient deed to the party of the first part, and give said party immediate and peaceable possession of property."
On October 30, 1926, Main sold the property to L.C. Bevier, subject to the mortgage, and on July 7, 1928, Bevier sold it to A.T. Rutledge, without reference to the mortgage. From *414 the time the mortgage was given and until the suit was brought, the monthly income from the premises varied from about $400 to $750 per month.
Title to the property was in Rutledge when, on February 11, 1929, plaintiff brought this action to foreclose the mortgage, joining as defendants the Billrel Company, Burns and all others who had become connected with the title. Plaintiff prayed for a personal judgment against all the defendants for the amount due upon the mortgage. To the complaint were attached the mortgage, as Exhibit "A," and the assignment, as Exhibit "B." Plaintiff asked for a receiver to take possession of the property and to collect the rents and profits therefrom and to disburse the same under the direction of the court.
The several defendants answered. Defendant Burns pleaded that the original note and agreement, mortgage and assignment of rents and revenue, were each a part of one and the same transaction. He set forth the agreement between plaintiff and Mains, alleged that it was made without his knowledge, against his will, and to his prejudice; that it materially and substantially altered, changed and modified the original note and agreement, mortgage and assignment of rents and revenue; that by reason thereof a material and substantial part of plaintiff's security for the payment of the note and agreement, secured to it by the mortgage and assignment of rents and revenue, was released, surrendered and impaired. Consequently, he averred that he had been exonerated from any and all liability on the mortgage. The affirmative allegations of Burns' answer were denied generally by the plaintiff.
The allegation that the assignment of rents was a part of the same transaction as the note and mortgage was denied; plaintiff alleged that the assignment "was executed as additional and collateral security for the payment of the note."
Respecting the agreement of November 28, plaintiff denied that it was executed to the prejudice of defendant and alleged that it was to his benefit "in that it provided for the payment *415 of certain taxes upon the premises which otherwise would have become charges against the mortgage for the payment of which" defendant stood as surety by virtue of the conveyance to him of the premises in question, subject to the mortgage which he assumed and agreed to pay; denied that "the original note, and agreement, mortgage and assignment of rentals, were altered, modified and changed by the agreement of November 28th," and alleged that the agreement of November 28 was never acted upon in any way or in any respect to the prejudice of defendant, "and no act or thing was done under and by virtue of said agreement whereby the rights or securities" of defendant were in any way prejudiced or impaired; alleged that defendant and his predecessors and successors in interest at all times wholly and entirely failed to pay over to plaintiff the gross rentals and profits derived from the building, other than such balances as from time to time may have remained after deducting the operating expenses, except that the defendant Rutledge never did pay over anything to plaintiff. Plaintiff did not plead that there was any want of consideration for the agreement of November 28, nor that it was illegal in any respect.
Upon the trial the court found that there was due plaintiff from the defendants Billrel Company, Inc., Burns, Seeman and Mains the sum of $31,043.74, with interest thereon at the rate of twelve per cent. per annum from the first day of February, 1929, together with attorneys' fees and costs; ordered the property to be sold and if the proceeds from the sale were insufficient to discharge the amount found due, that a deficiency judgment be entered against the defendants Billrel Company, Burns, Seeman and Mains. From this judgment the defendant Burns has appealed.
We hold that the note, mortgage and assignment of rents and[1] revenues, were constituent parts of one transaction. *416
Upon the facts that is so, and no refinement of argument can make it otherwise. The statute says that several contracts relating to the same matter, and made as parts substantially of one transaction, are to be taken together. (Sec. 7533, Rev. Codes 1921.) And, as the parts of this transaction referred to above, are to be taken together, they must be considered together for all purposes. (United States Nat. Bank v. Chappell,
We then come to the determinative question: Was defendant discharged from personal liability by the agreement entered into by plaintiff and Mains, of date November 28, 1925?
On that date Mains was the principal, and Burns a surety only[2] for the payment of the debt due plaintiff. (Shipman v.Terrill,
Section 8201 provides that a surety is exonerated: "1. In like[3] manner with a guarantor; 2. To the extent to which he is prejudiced by any act of the creditor which would naturally prove injurious to the remedies of the surety or inconsistent with his rights, or which lessens his security; or, 3. To the extent to which he is prejudiced by any omission of the creditor to do anything, when required by the surety, which it is his duty to do."
Section 8188, relating to the exoneration of a guarantor, which for convenience we divide into divisions (a) and (b), is as follows: "(a) A guarantor is exonerated, except so far as he may be indemnified by the principal, if by any act of the creditor, without the consent of the guarantor, the original obligation of the principal is altered in any respect, (b) or the remedies or rights of the creditor against the principal, in any respect thereto, in any wise impaired or suspended."
These sections are crystallizations of common-law principles, to and from which the codifiers did not add nor detract. *417 They appear in Field's Civil Code as sections 1565, 1564 and 1551. California borrowed them from the Field Code and we borrowed them from California. The rules of interpretation governing the application of these well-known principles have been determined by time and experience, and, with an exception here and there, have been stated with precision by the jurists and text-writers. The common-law rules of interpretation, therefore, are to be followed where the statute has gone no further than to crystallize common-law principles. We are holding fast to that which had proved good.
An analysis of the foregoing sections may prove useful.[4] Subdivision 1, which by reference includes section 8188, covers defenses which are not comprehended by either subdivision 2 or subdivision 3. That part of section 8188 which we have designated (a) deals with a legal defense as distinct from one that is equitable in its origin. For example, if a creditor changes the date of a note the surety has a defense, whether he will be prejudiced or not; his defense is that the changed note is not his contract. That part which is designated (b) has to do with cases where, strictly speaking, there may not be an alteration of the instrument itself. Suppose, for example, that a man has guaranteed a negotiable note. If the creditor makes a collateral contract with the principal debtor, extending the time of payment, without the consent of the guarantor, the latter has a defense, although at law the original obligation of the principal, that is, the debt, stands unaltered; the contract extending the time of payment would, however, impair or suspend the rights of the creditor with respect thereto. If there is no consideration for the collateral promise to extend the time of payment it is not binding and, therefore, cannot impair or suspend the rights of the creditor. This principle is recognized in section 8189.
Section 8188 deals with alterations of contracts, and collateral contracts which cripple the right of subrogation. Subdivision 2 of section 8201 has to do with "any act" of the creditor with respect to the obligation that would "naturally prove *418
injurious to the remedies of the surety." It bears a close kinship to that part of section 8188 designated (b) with respect to the right of subrogation but does not invariably cover the same subject matter; it is complementary to section 8188. As illustrative see: General Steam Nav. Co. v. Rolt, 6 Com. B. (n.s.) 550; Calvert v. London Dock Co., 2 Keen, 638; Countyof Glenn v. Jones,
Contrary to what we have just said is the argument of counsel for plaintiff, based upon the case of National Surety Co. v.Lincoln County, 238 Fed. 705, 711, that subdivisions 2 and 3 are controlling over subdivision 1. The opinion in that case so holds upon the assumption that this court said so in Dodd v.Vucovich,
Upon his principal's default the surety was at liberty at any[5-8] time to pay the debt and be subrogated to all the rights of the creditor and all securities in the creditor's hands. *419
(Schroepel v. Shaw, 5 Barb. (N.Y.) 580; Asbell v. MarshallB. L. Assn.,
On its face the agreement of November 28 materially altered the original obligation contained in the note, mortgage and assignment of rents. Under the terms thereof the mortgagor was bound to pay the sum of $351.39 monthly and to pay the taxes when due; the mortgagee was entitled to the gross revenue from the mortgaged property (but only if the mortgagor failed in his obligation); the mortgagee was authorized to pay the taxes if the mortgagor did not, the payment being secured by the mortgaged property, and the mortgagee was entitled to interest thereon at twelve per cent. per annum.
By the November 28 agreement, Mains, who stood in the mortgagor's shoes, was excused from the obligation of paying the full sum of $351.39 per month, and the mortgagee gave up its right to receive the gross revenues from the property; Mains was given the privilege of deducting the operating expenses from the gross receipts, being obliged to pay over only the remainder, and he was allowed to pay as little as $200 per month. The mortgagee waived the default in the payment of the 1924 taxes, and extended the time for the payment thereof for two years. And, as will be referred to later, plaintiff in effect waived the right to foreclose the mortgage, for the time at least, because of the defaults of *420 Mains in failing to pay a number of monthly installments of rent.
Upon the foregoing facts it is idle to say that the November 28 agreement, if valid, did not materially alter the original obligation.
But plaintiff's counsel argues that the agreement is void as being in contravention of section 8230, Revised Codes 1921, which provides: "All contracts for the forfeiture of property subject to a lien, in satisfaction of the obligation secured thereby, and all contracts in restraint of the right of redemption from a lien, are void."
Plaintiff did not plead the illegality of the contract in the court below. On the contrary its counsel treated it as valid, pleading that it was beneficial to defendant. The case was tried and decided upon the theory that the contract was valid and binding. Under the well-known rule counsel ought not now to present a different theory from that upon which he tried the case in the court below. "The rule is settled in this jurisdiction that when a party has adopted one theory upon the trial of his case he may not change the theory on appeal. (Gay v. LavinaState Bank,
Conceding, however, that as the stipulation respecting the giving of a deed is in contravention of public policy and that the court should consider the argument now made for the first time, the result is the same. Treating the stipulation for a good and sufficient deed (which under the circumstances contemplated a termination of Mains' rights in the property) as violating section 8230, supra, it will be seen that the stipulation is interwoven with and inseparable from the provisions respecting[9] the rents and profits. The question then arises whether the void stipulation vitiates the entire agreement; it does unless the agreement is severable, and to this inquiry we direct our attention. *421
Section 7506, Revised Codes of 1921, provides: "If any part of a single consideration for one or more objects, or of several considerations for a single object, is unlawful, the entire contract is void." It is said in Hughes v. Mullins,
The first paragraph of the agreement deals with the delinquent tax for the year 1924, and the tax for 1925, one-half of which was payable on or before November 30 (but two days remained for that payment without penalty). The second part relates to the disposition of the rents and profits from the building, and, as has been demonstrated, is specifically designed to modify the original obligation. The first part of the contract has no necessary relation to the second, nor has the second to the first. While it is argued by counsel for plaintiff that there is not any consideration for the agreement (although there is no plea on that score), there is ample consideration for that part which relates to the taxes (Shipman v. Terrill, supra), and this without reference to the second part.
Without the second part of the agreement being considered, did the first part operate to discharge the surety? We think it did. Plaintiff would have been fully within its rights had it paid the 1924 taxes; and within its rights if it had withheld foreclosure; it had the right to forbear. (Shipman v. Terrill, supra.) But when it entered into the agreement of November 28 it suspended its right to foreclose because of that default for a period of two years. It must be supposed that the agreement respecting the taxes contemplated a forbearance as to Mains' various defaults, at least until another default. It certainly was not intended upon the execution of the agreement *422 respecting the taxes, that plaintiff would or could proceed with foreclosure on account of defaults then existing respecting the monthly installments.
The mortgagee then being prevented from enforcing the payment of the mortgage debt because of the tax delinquency (and, tacitly at least, because of the installment delinquencies) defendant was likewise prevented, as his rights were no greater than those of the plaintiff. (Asbell v. Marshall B. L. Assn., supra.)
It is clear, then, that without the surety's consent, the original obligation of the principal was altered, and the remedies and rights of the creditor against Mains, the principal, in respect thereto were suspended. This discharged the surety. (Vinson v. Pelletier,
The argument that the delay was inconsequential cannot be sustained. "The creditor must be in such a situation that when the surety comes to be substituted in his place by paying the debt, he may have an immediate right against the principal. If that right can be postponed for a single day, it may be for a month or a year." (Bangs v. Strong, supra.) It makes no difference for how short a period the time is extended. (Brandt on Suretyship, sec. 378.)
If the creditor without the consent of the surety does any act[10] which, in contemplation of law, alters the surety's liability, increases his risk, or deprives him even for a moment of the right to pay the debt and assume the position of the creditor, or of his right to seek indemnity, the surety is thereby discharged and the fact that the surety may not have been actually injured is immaterial. (Barker v. Illinois SuretyCo.,
In interpreting sections 2819 and 2840 of the California Code, identical with our 8188 and 8201, the court of that state said: "Our decisions construing these sections uniformly hold that if there has been such a change in the contract in any *423
(material) respect, the inquiry there ends and the guarantor is exonerated, and that it is not a subject of inquiry whether the alteration has or has not been to his injury." (FirstCongregational Church of Christ v. Lowry,
Construing the identical statutes the supreme court of South Dakota said: "Generally a surety is discharged if the creditor deprives him of any right which he would have against the principal, even though he be benefited, whether such injury arises from some positive act, or omitting to do something which it was the duty of the creditor to perform." (Hampe v. Manke,
In Dodd v. Vucovich, supra, we have seen that this court said that the surety would have been discharged had the contract been valid. There cannot be any doubt, the circumstances considered, that the agreement of November 28 had no other effect, and could have no other effect, than to delay the surety in taking advantage of the principal debtor's defaults, in case the surety had desired to do so (and this court cannot say that upon being apprised of the facts he would not have done so); nor can there be any doubt that the remedies and rights of the creditor against the principal in respect to the original obligation were suspended. The lower court's findings, whether directly or indirectly to the contrary, are not sustained by the law or the evidence.
It follows that, as to defendant Burns, the judgment cannot stand. The cause is remanded to the district court of Yellowstone county with direction to cancel the decree in so far as it directs the entry of a personal judgment against the defendant Burns, who shall recover his costs upon this appeal.
ASSOCIATE JUSTICES GALEN, FORD, ANGSTMAN and MATTHEWS concur. *424