Meredith College, Inc. v. Lee, 212 N.C. 327 (1937)

Nov. 3, 1937 · Supreme Court of North Carolina

212 N.C. 327

MEREDITH COLLEGE, INC., v. J. T. LEE and His Wife, ALDONIA LEE; W. L. ADAMS and His Wife, MATTIE ADAMS; JOHN JERNIGAN and His Wife, LIZZIE JERNIGAN; and Others.

(Filed 3 November, 1937.)

1. Mortgages § 23b — Liability of grantee on debt assumption contract is limited as to both mortgagor and mortgagee by stipulations in contract.

Where a grantee in a deed assumes and agrees to pay off the mortgage debt against the property as a part of the consideration for the conveyance of the lands, the grantee becomes personally liable to the mortgagor and to the mortgagee, but such liability is limited, as to both of them, by stipulations in the debt assumption contract.

2. Same — Liability of grantee to mortgagee held discharged under limitation in debt assumption contract upon payment of one-half of mortgage debt.

Where successive grantees of a part of lands embraced in a mortgage each agree to assume and pay off one-half the mortgage debt as a part of the purchase price, their respective liabilities to the mortgagee are limited to one-half the mortgage debt, with interest thereon only from the time of the debt assumption contract, and where the lands conveyed to them are foreclosed under the mortgage and the proceeds of sale, amounting to more than one-half the mortgage debt, are applied on the notes, the liability of the grantees is discharged in accordance with the limitation in the debt assumption contract, and the mortgagee may not hold them liable for the balance of the mortgage debt.

Appeal by defendants W. L. Adams and John Jernigan from Harris, J., at April Term, 1937, of JoeotstoN.

This is an action to recover on a note for $1,600, which was executed on 18 August, 1920, by the defendants J. T. Lee and his wife, Aldonia Lee, and is payable to the order of the plaintiff. The note sued on bears interest from date at the rate of 6 per centum per annum, payable semiannually, and was due three years after its date. Interest has been paid on said note to 1 January, 1929. This action was begun in the Superior Court of Johnston County on 22 November, 1935.

It is alleged in the complaint that after its execution the defendants W. L. Adams and John Jernigan, each for a valuable consideration, and successively, assumed the payment of the note sued on, and agreed to pay the said note to the plaintiff.

This allegation is denied in the answer of each of said defendants.

At the trial the facts were shown to be as follows:

1. On 18 August, 1920, in consideration of money loaned to them by the plaintiff, the defendants J. T. Lee and his wife, Aldonia Lee, executed their note for $1,600, payable three years after its date to the order of the plaintiff, and bearing interest from date at the rate of 6 per centum per annum, payable semiannually. The-interest on said note has been paid to 1 January, 1929.

2. Contemporaneously with the execution of said note, and for the purpose of securing its payment according to its terms, the defendants J. T. Lee and his wife, Aldonia Lee, executed a mortgage by which they conveyed to the plaintiff two tracts of land described in said mortgage, and situate in Johnston County, North Carolina, each containing about 18 acres, and both being of practically the same value. This mortgage was duly recorded in the office of the register of deeds of Johnston County in Book G-, No. 7, at page 574.

3. Thereafter; to wit, on or about 2 April, 1927, for the recited consideration of $2,500, the defendants J. T. Lee and his wife, Aldonia Lee, conveyed one of the tracts of land described in their mortgage to the plaintiff to the defendant W. L. Adams, who thereupon and.contemporaneously with the execution of the deed by the said J. T. Lee and his wife, Aldonia Lee, conveying the said tract of land to him, as-sinned tbe payment of one-balf tbe note of tbe said J. T. Lee and wife, Aldonia Lee, to tbe plaintiff, and agreed to pay said one-balf to tbe plaintiff in part consideration of tbe conveyance of said tract of land to bim by tbe said J. T. Lee and bis wife, Aldonia Lee.

4. Thereafter, to wit, on or about 29 October, 1927, for tbe recited consideration of $2,500, tbe said W. L. Adams and bis wife, Mattie Adams, conveyed tbe tract of land described in tbe deed from J. T. Lee and bis wife, Aldonia Lee, to bim to tbe defendant Jobn Jernigan, wbo thereupon, and contemporaneously with tbe execution of tbe deed by tbe said W. L. Adams and bis wife, Mattie Adams, conveying tbe said tract of land to bim, assumed tbe payment of one-balf tbe note of J. T. Lee and bis wife, Aldonia Lee, to tbe plaintiff, and agreed to pay said one-balf to tbe plaintiff in part consideration of tbe conveyance of said tract of land to bim by tbe said W. L. Adams and bis wife, Mattie Adams.

5. Contemporaneously with tbe execution of their deed conveying one of tbe tracts of land described in their mortgage to tbe plaintiff to tbe defendant W. L. Adams, to wit, on 2 April, 1927, tbe defendants J. T. Lee and bis wife, Aldonia Lee, for tbe recited consideration of $2,500, conveyed tbe other tract of land described in said mortgage to Jesse Tart, wbo thereupon, and contemporaneously with tbe execution of tbe deed by tbe said J. T. Lee and bis wife, Aldonia Lee, conveying said tract of land to bim, assumed tbe payment of one-balf tbe note of J. T. Lee and bis wife, Aldonia Lee, to tbe plaintiff, and agreed to pay said one-balf to tbe plaintiff in part consideration of tbe conveyance of said tract of land to him by tbe said J. T. Lee and bis wife, Aldonia Lee.

6. Since tbe conveyance by J. T. Lee and bis wife, Aldonia Lee, of one of the tracts of land' described in their mortgage to the plaintiff to Jesse Tart tbe said tract of land has been sold under a mortgage which was prior to tbe mortgage from J. T. Lee and bis wife, Aldonia Lee to tbe plaintiff. Tbe plaintiff received no part of tbe sum realized from tbe sale of said tract of land as a payment on its note for $1,600 from J. T. Lee and bis wife, Aldonia Lee, nor has it received from Jesse Tart any sum as a payment on said note.

7. Since tbe commencement of this action tbe plaintiff has foreclosed tbe mortgage which tbe defendants J. T. Lee and bis wife, Aldonia Lee, executed to tbe plaintiff, and has sold tbe tract of land which tbe said J. T. Lee and bis wife, Aldonia Lee, conveyed to tbe defendant ~W. L. Adams by their deed dated 2 April, 1927, and wbieb tbe defendant W. L. Adams and bis wife, Mattie Adams, conveyed to tbe defendant Jobn Jernigan by their deed dated 29 October, 1927. Tbe plaintiff received from tbe sale of tbe said tract of land tbe sum of $1,282.47, which it has applied as a payment on its note from J. T. Lee and wife, Aldonia Lee, leaving tbe amount due on said note on 19 April, 1927, $1,117.53

8. The plaintiff has heretofore in tbis action recovered judgment against tbe defendants J. T. Lee and bis wife, Aldonia Lee, on tbe note sued on. Tbis judgment bas not been paid.

On tbe foregoing facts, admitted in tbe pleadings and found by tbe jury in response to issues submitted to them, it was ordered, considered, and adjudged by tbe court that tbe plaintiff recover of tbe defendants W. L. Adams and John Jernigan tbe sum of $558.76, witb interest on said sum from 19 April, 1937, until paid, and tbe costs of tbe action, to be taxed by tbe clerk.

From this judgment tbe defendants W. L. Adams and John Jernigan appealed to tbe Supreme Court, assigning errors in tbe trial and error in tbe judgment.

Winfield H. Lyon for plaintiff.

L. L. Levinson and Larry F. Wood for defendant W. L. Adams.

Parker & Lee for defendant John Jernigan.

CONNOR, J.

On tbe facts admitted in tbe pleadings and found by tbe jury at tbe trial of tbis action, tbe defendants W. L. Adams and John Jernigan were each personally liable to tbe plaintiff on tbe note sued on in tbis action. In Bank v. Randolph, 207 N. C., 241, 176 S. E., 561, it is said:

“Whatever conflict there may appear to be in tbe decisions of tbis Court witb respect to tbe liability of tbe grantee of land who bas assumed tbe payment of an indebtedness of bis grantor which was secured by a prior mortgage or deed of trust executed by tbe grantor, as said in Bank v. Page, 206 N. ’C., 18, 173 S. E., 312, Tbe law undoubtedly is, that when a purchaser of mortgaged lands, by a valid and sufficient contract of assumption, agrees witb tbe mortgagor, who is personally liable therefor, to assume and pay off tbe mortgage debt, such agreement inures to tbe benefit of tbe bolder of tbe mortgage, and upon its acceptance by him, or reliance thereon by tbe mortgagee, thenceforth, as between themselves, tbe grantee occupies tbe position of principal debtor and tbe mortgagor that of surety, and tbe liability thus arising from said assumption agreement may be enforced by suit in equity under tbe doctrine of subrogation, Baber v. Hanie, 163 N. C., 588, 80 S. E., 57, or by an action at law as upon a contract for the benefit of a third person, Rector v. Lyda, 180 N. C., 577, 105 S. E., 176.’ ”

Tbe liability of a grantee of mortgaged lands, by reason of an assumption agreement witb bis grantor, both to tbe mortgagor and to tbe mortgagee, arises out of bis contract, and is limited by its terms. See 41 C. J., p. 760, sec. 837.

Where, as in tbe instant case, tbe grantee by bis assumption agreement witb bis grantor limits bis liability on tbe indebtedness of bis grantor secured by a mortgage on tbe land, sucb limitation applies to his liability not only to tbe mortgagor but also to tbe mortgagee.

Tbe defendants in this ease, by reason of' tbeir assumption agreements witb tbeir respective grantors, were liable to them and to tbe plaintiff for only dne-half of tbe indebtedness of J. T. Lee and bis wife, Aldonia Lee, to wit, $800.00 and interest which should accrue after tbe dates of tbeir respective agreements. This liability was discharged by tbe payment made on said note out of tbe proceeds of tbe sale of tbe land which was conveyed to tbe defendants, to wit, tbe sum of $1,282.47. Neither of them is now liable to tbe plaintiff on tbe note sued on.

There is error in tbe judgment that plaintiff recover of tbe defendants tbe sum of $558.76. Tbe action is remanded to tbe Superior Court of Johnston County that judgment may there be entered in this action in accordance witb this opinion.

Error and remanded.