Rogers v. Castle , 51 Minn. 428 ( 1892 )

Diokinson, J.

This is an action to recover the amount of two promissory notes executed by the defendant Jones to the plaintiff and one Marshall, to whose rights the plaintiff has succeeded. These notes, with another which has been paid, were given by Jones for the purchase price of a quarter section of land at or near North St. Paul, in Washington county, which was sold and conveyed by Rogers and Marshall to Jones. Jones executed to the vendors a mortgage on this land to secure the notes. The controversy is as to whether the defendant, Castle, afterwards assumed the payment of this mortgage debt, so as to have become personally liable therefor to the plaintiff.

Prior to the purchase by Jones, an association or “syndicate” was formed by Castle, Stone, Morton, and others to deal in real estate near North St. Paul. Castle contributed $10,000 to the enterprise. Stone and Morton had active charge of the affairs of the association, and Jones was its secretary. While the vendors sold and conveyed this land to Jones, he was in fact acting in behalf of the association, and took and held the title for it, he having no real interest in the land. One Stanton had also purchased other lands, taking the title in himself, but acting only in behalf of the syndicate. Stanton being about to remove from the state, Castle consented, at the request of Stone, that the title held by Stanton should, for convenience, be conveyed to him, (Castle.) Castle, supposing that all of the syndicate lands were thus held by Stanton, consented that all should be conveyed to himself; he not knowing that Jones held the title to the tract here referred to. Stone then instructed Jones to cause the titles to such lands to be transferred to Castle. Jones then (July 26, 1887) executed a deed from himself to Castle, conveying the quarter section of land above referred to, caused it to be recorded in Washington county, and, after having been so recorded, he placed it, among other syndicate papers, in a safe of which he had the combination, where it afterwards remained. The scrivener who drew this deed, without being instructed so to do, but of his own motion, inserted therein the words, “which mortgage indebtedness the said Henry A. Castle, party of the second part, hereby assumes and agrees to pay.” This language referred to the notes and mortgage which Jones had given to this plaintiff and Marshall. It is upon this clause in that deed that the plaintiff seeks in this action to hold Castle to a personal liability for the payment of the mortgage debt.

When Jones executed the deed, he knew that it contained these words, but he did not understand why they had been inserted, and did not know their legal effect; nor was it the intention of the parties that Castle should assume the mortgage debt.

The deed was never delivered to Castle, as is found by the court; and in the form in which it was drawn — with the clause imposing on Castle a personal liability for the debt — he never authorized the execution of it to himself, nor' was it accepted by him, nor ratified after he knew the contents of it. He did not know that this deed had been executed to him by Jones until some time in the year 1890; nor prior to July, 1890, did he know that the deed contained the above-recited clause. Upon learning this fact, he repudiated the same, and so informed Jones.

When the plaintiff acquired from Marshall the interest of the latter, he knew that Castle denied his liability upon the grounds here relied upon in defense.

For the purposes of this decision, it may be assumed, in favor of fhe appellant, that the deed to Castle took effect and became operative as a conveyance when it was recorded by Jones, and placed ;among the other papers of the syndicate. We will assume, too, that, ras a general legal proposition, the mortgage creditor of the grantor might, under ordinary circumstances, maintain an action against the grantee to recover on such an assumption clause in the deed. /But, though this be so, we think that the facts here disclosed and found constitute a defense in favor of Castle.

There was no privity of contract between Castle and the plaintiff. The latter was a stranger to the alleged contract obligation upon which the plaintiff seeks to recover, as well as to the consideration therefor. He stood in no other relation to the transaction than that of a merely gratuitous beneficiary of a promise made, if at all, not to him, but to a stranger. He certainly cannot assert rights superior to those of Jones, the promisee. But if Jones had sued to enforce this alleged obligation of Castle, the facts here shown would have been available as an equitable defense. Castle would have been entitled to a refofmation of the deed by striking out the assumption clause. Neither of the parties intended that the deed should contain a provision imposing a personal liability on the grantee. There had been no such agreement between them. Castle did not know until long afterwards that the deed contained such a clause, and Jones did not know that it imposed a liability on the person to whom the conveyance was thus made. To enforce the expressed obligation would be contrary to the intention of both parties. To reform it by striking out this clause would make the deed as it was intended by both parties to be, and no rights would be prejudiced thereby. That equity will a.fford relief in such cases, even though, as to Jones, the mistake was as to the legal effect of the deed in its present form, see Benson v. Markoe, 37 Minn. 30, (33 N. W. Rep. 38,) and cases referred to.

It is said that Jones could not have been compelled to relinquish his title to the syndicate without their assuming the debt which he had taken on himself when he bought the land for them. That may or may not be true. It would probably depend upon circumstances which cannot be presumed to be here fully disclosed. But, even if that be true, it is of little importance here. The question is not what Jones might have done, — what conditions he might have insisted upon. If he might have refused to convey unless his grantee would assume a personal liability for the mortgage debt, he did not do so. He intended to convey the property without subjecting his grantee to such liability. Nor does it appear that Castle was under any obligation, legal or moral, to assume the debt of Jones. Even if the syndicate owed to Jones any such duty, Castle was not the syndicate.

That this equitable defense is available against this plaintiff, as it would have been against Jones, see Bull v. Titsworth, 29 N. J. Eq. 73; Kilmer v. Smith, 77 N. Y. 226; Albany City Savings Inst. v. Burdick, 87 N. Y. 40. The right of action in the gratuitous beneficiary is subject to the equities between the parties to the contract., Dunning v. Leavitt, 85 N. Y. 30. An actual reformation of the deed cannot be necessary for the purposes of this defense as to a stranger to the whole transaction. If it would be inequitable between the parties to enforce the expressed obligation, which they never intended to create or assume, that is a sufficient reason why one standing in the situation of this plaintiff should not enforce it. The decision in Follansbee v. Johnson, 28 Minn. 311, (9 N. W. Rep. 882,) is not opposed to the view which we here express. The question presented and considered in that case was as to the sufficiency of the evidence offered to establish fraud.

The delivery of the deed, and the fact that it took effect as a conveyance, do not stand in the way of a reformation. Nor was it necessary that the grantee should reconvey the land, or return the deed, or repudiate it as a conveyance and in toto, to enable him to assert this equitable defense to the enforcement of this alleged obligation. The retention of the deed, without knowledge that it contained such a clause or imposed an obligation not contemplated by the parties, would not be effectual as a ratification of or acquiescence in that clause of the deed, especially if, as was the fact, Castle did not even know of the existence of the deed or of its having been recorded. Nor were there any facts which could operate as an estoppel against him.

The findings of fact, which are necessarily decisive of the case, are clearly in accordance with the evidence.

What has been already said is applicable to several of the assignments of error as to the rulings and findings of the court. Some of the others should be briefly noticed.

If this was a case in which the defendant might have been compelled to elect whether he would rely upon the defense of mistake or fraud, there was no exception which can be regarded as applying to the refusal of the court to require an election to be made.

The finding of the court that, in causing the deed to be recorded, with the assumption clause in it, Jones was guilty of a legal fraud, was evidently intended as a mere legal conclusion from the facts specifically found. Even though such a conclusion may not have been justified, a reversal would not follow, for it is not material whether the insertion of the assumption clause be looked upon as a mistake, only, or as a fraud. It is enough that it was a mistake, accomplishing an effect not intended even by the party who alone knew that such a clause was in the deed; and that it was at least such a mistake is settled by the specific findings of the court. It is reasonable to suppose that what was meant by the statement in the findings, above indicated, was that to enforce or give effect to this clause, under the circumstances as found, would operate as a fraud upon the grantee.

There were some rulings concerning evidence which was clearly immaterial or incompetent, to which we do not deem it necessary to refer particularly.

Order affirmed.

(Opinion published. 53 N. W. Rep. 651.)