171 A. 520 | N.J. | 1934
A mortgage in the sum of $27,600, covering twenty-three acres of land, made by one William Rovner to plaintiff, and by the latter assigned to the Woodbury Trust Company, as collateral security for a loan of $15,000, was in default. It was given to secure Rovner's bond. Under an agreement bearing date October 28th, 1927, defendants, Handle and Abraham J. Rovner, agreed to convey, or cause to be conveyed, to plaintiff a certain tract of land, comprising *449 twenty acres, owned by William Rovner, subject to a mortgage in the sum of $18,400, and to pay accrued interest on both mortgages, and unpaid taxes for the year 1926, assessed against the first-mentioned tract. In consideration thereof, plaintiff agreed to waive the default in the performance of the covenants and stipulations of the mortgage in the sum of $27,600, and, "at the expiration of the term of the mortgage," to extend, for a further period of two years, the time for payment thereof, "upon the payment by the owner of the land * * * to the mortgagee or mortgagees or assignees thereof of the sum of $7,600 on account of the principal thereof." The mortgage matured on February 11th, 1931. Defendants covenanted and agreed, "in further consideration of the foregoing, to indemnify and save harmless to the extent of $7,600 said mortgagee in said mortgage named, or any assignee or assignees thereof, from any and all loss occasioned by the failure of the owner of said land at the expiration of the term of said mortgage to reduce the principal thereof as hereinbefore provided."
There was compliance with the clause of the agreement requiring defendants to procure a conveyance of the twenty acres tract, and to pay the interest and taxes in arrears. But when the mortgage matured, the landowner defaulted in the payment of $7,600 on account of the principal thereof, and plaintiff brought this action to recover that sum. Trial of the issue was moved before a jury in the court below, and, upon presentation of the proofs, both sides moved for a direction of a verdict. The issue was then, by consent, submitted to the trial judge "for decision on both law and facts," and he found for plaintiff in the sum demanded.
The trial judge held that it was immaterial whether the covenant sued on was a guaranty of payment or provided for an indemnity against loss; that assuming it to be a contract of indemnity, a loss in the full sum demanded by plaintiff had been proven, and that neither the sale of the bond and mortgage, nor the foreclosure of the mortgage and suit on the bond, was a condition precedent to the right of recovery; and that the assignment of the mortgage to the Trust Company *450 "did not operate as an assignment of the guarantee or indemnity," and the pleaded cause of action was, therefore, vested in plaintiff. Judgment for plaintiff was accordingly entered, and defendant, Handle, appeals.
In awarding judgment to plaintiff the trial judge fell into error. The pleaded cause of action is a breach of an absolute guaranty of payment. But the contract is one of indemnity against loss, and not an agreement of guaranty. It expressly so provides. Defendants did not absolutely and unconditionally guarantee the payment of the specified sum, in event that the landowner failed to do so at the maturity of the mortgage. Compare Pfeiffer v.Crossley,
Contracts of guaranty and indemnity have definitely established distinguishing features. Generally speaking, the word "indemnity" is used in two general senses: First, the sense of giving security; and secondly, in the sense of compensating for actual loss or damage. Indemnity springs from contract, express or implied, and it is more specifically defined, in terms of obligation or contractual relationship, as an obligation or duty resting on one person to make good any loss or damage another has incurred, or may incur, while *451 acting at his request or for his benefit. 14 R.C.L. 43; 31C.J. 419.
The promise in an indemnity contract is an original and not a collateral undertaking, and in this particular differs from a contract of guaranty. The contract to indemnify is an original undertaking to save the indemnitee harmless against loss or damage of a specified character which may happen in the future. The liability assumed is not secondary, but primary. Wolthousen
v. Trimpert,
But the case does not necessarily turn upon this construction of the contract. It is, in the true sense, a contract of indemnity, even though it indemnifies against loss suffered by reason of the failure of the landowner to make a payment for which he is personally obligated, and not that sustained *452
by the indemnitee upon an obligation incurred to a third person. The distinction between indemnity agreements and guaranties, made in the cases referred to, does not take into account the undoubted right of the parties to make a contract that is primarily and essentially one of indemnity. North v. North Son,
There is little or no practical difference, in respect of the admeasurement of damages, between a covenant of indemnity against loss, as the result of the non-payment of a debt, and a guaranty of collection. "There is a well understood difference between a guaranty of payment and a contract of indemnity against loss as the result of the non-payment of a debt. In the first case the liability of the guarantor is fixed by the failure of the principal debtor to pay at maturity, or at the time when payment was guaranteed. In the second, the contract partakes of the nature of a guaranty of collection, no liability being incurred until after, by the use of due and reasonable diligence, the guarantee has become unable to collect the debt from the principal debtor." Burton v. Dewey, 4 Kan. A. 589;46 Pac. Rep. 325.
The parties were at liberty to cast their agreement in the form of a guaranty or an indemnity, as they chose. Their rights and obligations may be whatever the parties, by their contract, choose to make them. The cardinal rule, in the *454
interpretation of contracts, is to ascertain and give effect to the mutual intention of the parties, as far as that intention may be effectuated without violating legal principles. Defendants are liable to plaintiff only according to the terms of their agreement. "The law will not by implication supply, or add to, a contract, unless the parties have invited such assistance and addition by omission expressly to define their obligations."Assets Realization Co. v. Howard,
In form and substance the contract is one of indemnity. The obligation undertaken by appellant was not an absolute one. He did not make an unconditional promise to pay the sum specified; it was qualified or conditional upon the plaintiff sustaining loss. It was not a conditional guaranty. Defendants merely bound themselves to indemnify and save plaintiff harmless, to the extent of the mentioned sum, from any and all loss occasioned by the failure of the landowner, at the maturity of the mortgage, to pay that sum on account of the principal. The use of the words "indemnify and save harmless" signifies a purpose to protect against actual loss only. North v. North Son, supra; Miller
v. Fries and Marks,
It follows, from the foregoing, that the pleaded cause of action did not arise from the agreement in suit. While insisting that the agreement unconditionally guaranteed payment to plaintiff, upon the failure of the landowner to reduce the principal as therein provided, and that "the agreement being to pay money on a certain day, the loss is the amount agreed to be paid," plaintiff offered evidence tending to establish an actual loss, and the amount thereof. But appellant, by objection seasonably made, raised the question of variance. This must be resolved in his favor. The cause of action pleaded was a breach of an absolute and unconditional guaranty of payment upon the happening of a specified event. There was no allegation that plaintiff suffered actual loss by reason of the failure of the landowner to reduce the principal, as provided in the agreement. Proof of actual loss, upon the theory of a contract to merely indemnify plaintiff against loss occasioned by the failure of payment, was inadmissible. There was, therefore, a substantial and material variance between the pleadings and the proof. InJordon v. Reed, *456
Plaintiff is not aided by the fact that the agreement was attached to the complaint, and made a part thereof. Appellant was advised by the allegations of the complaint that the sole cause of action asserted by plaintiff was based upon defendants' alleged absolute and unconditional promise to pay the mentioned sum on the happening of the specified event. Actual loss was not averred, nor was proof of loss required to sustain the pleaded cause of action. It was offered on the theory that defendants' obligation was merely to indemnify and save plaintiff harmless against loss. This was an unpleaded alternative cause of action, which required, to sustain it, proof of loss actually suffered. There was, therefore, a substantial variance, prejudicial to appellant, between the case pleaded and the case proven.
Moreover, the evidence offered was incompetent to establish actual loss within the intendment of the indemnity agreement. Plaintiff did not foreclose the mortgage. It sought, by the offered evidence, to establish the value of the security, and thus furnish a basis for the determination of the loss which it claimed to have suffered. But, as pointed out, the agreement provided indemnity for the loss suffered by reason of a deficiency in the mortgage security, and foreclosure was essential to determine this. Resort must first be had to the mortgage security. This is likewise the rule in the case of a conditional guaranty. Pfeiffer v. Crossley, supra; 28 C.J.978. The plain import of the contract is *457 that defendants will pay only the deficiency in the mortgage security, and that they will not be held liable until the security has been exhausted or resorted to without avail. Foreclosure is an indispensable requisite, unless there is an absolute guaranty of the payment of the mortgage debt. Pfeiffer v. Crossley, supra; Schaaf v. O'Brien, 8 Daly (N.Y.) 181;Clark v. Best, 8 Grant Ch. 7.
It is a long established state policy that, where a bond and mortgage are given for the same debt, a deficiency does not arise unless, at a sale in foreclosure proceedings, the mortgaged premises should not sell for a sum sufficient to satisfy the amount due. Bradley v. Atlantic Guaranty, c., Co.,
There was error also in the holding that the assignment of the mortgage to the Trust Company "did not operate as an assignment of the guaranty or indemnity." The rule is that an assignment of the principal debt, if not limited in its scope, carries with it the promises and undertakings connected therewith, and tending to secure its payment. Wooley v. Moore,
The bond and mortgage and the indemnity covenant are inseparable. The latter is an incident of the former. The transfer of the bond and mortgage carries the indemnity agreement with it, without any formal assignment or delivery, or even mention of the latter. When the mortgage debt is satisfied the indemnity covenant loses efficacy. It occupies a dependent and incidental relation. Compare Carpenter v. Longan, 16 Wall.271;
Judgment reversed.