Iowa Title & Loan Co. v. Clark Bros.

I. The notes in suit were signed by Clark Brothers and the individual members of the firm and their wives. The defendants herein comprised the firm and one partner and his wife. For convenience of discussion, we shall refer to the defendant in the singular number. The affirmative facts relied on as a defense may be stated briefly.

On February 1, 1918, the defendant obtained from the plaintiff a loan of $10,000, to be due in five years from date. The debt was evidenced by a series of promissory notes, and was secured by a first mortgage upon real estate. In January, 1920, the defendant sold the real estate to Dunkin, who assumed and agreed to pay the mortgage. The notes in suit are two of the series which evidenced the loan. After his purchase, Dunkin paid the annual interest until the due date of the mortgage, February 1, 1923. On or about that date, a contract of extension was entered into between him and the plaintiff, purporting to extend the time of payment of the principal debt for five years from February 1, 1923. By such contract Dunkin agreed to pay to the plaintiff the full amount of such debt, with interest, on February 1, 1928. He also executed and delivered to the plaintiff interest coupons for semiannual interest at 6 per cent from February 1, 1923, to February 1, 1928. He paid all accruing interest up to February 1, 1926, and defaulted on February 1, 1927. This action is brought to recover the principal sum of the two notes, with interest thereon from February 1, 1926.

The argument for the appellant is that, by the assumption of the mortgage as a part of the purchase price of the land, Dunkin became primarily liable for the debt, and that, as between the vendor and the vendee, the vendor was secondarily liable only; that the new relation of this defendant to the debt as thus created became fully known to the plaintiff; and that it acquiesced in and accepted the same; that the extension of the time of payment in the manner indicated, without the knowledge or consent of the defendant, operated as a discharge of the defendant from all liability upon the note. The argument has much logical force, and is adopted in the decisions in some states. It would be entitled to much consideration here, if the question were an open one in this state. Such question is fully foreclosed, however, by a long line of our decisions, beginning in a very early day. These are the following: Corbett v.Waterman, 11 Iowa 86; Massie v. Mann, 17 Iowa 131; James v. Day,37 Iowa 164; Robertson v. Stuhlmiller, 93 Iowa 326; Iowa L. Tr.Co. v. Haller, 119 Iowa 645; Mowbray v. Simons, 183 Iowa 1389;Clarinda Nat. Bank v. Kirby, 191 Iowa 786; and Baldwin v. Munger,200 Iowa 32.

In the Corbett case, 11 Iowa 86, it was held that though, as between vendee and vendor, the vendee by his assumption makes the debt his own, and becomes primarily liable therefor, yet such assumption has no qualifying effect upon the rights of the mortgagee, other than to enhance. The mortgagee relinquishes nothing, as against his mortgagor. He may enforce the obligation assumed by the vendee or not, as he may choose. He may enforce it in whole or in part, or he may ignore it entirely; and, as against the mortgagee, the mortgagor is not deemed to be surety. He still continues as a principal. This holding has been reaffirmed and somewhat amplified in the later decisions herein cited. Under these authorities, the extension of time, if such, which was granted to the assumptor was not binding upon the vendor, as mortgagor, and could not operate prejudicially to him. The vendee was bound to the vendor by his covenant to pay the mortgage when it fell due. The extension of time granted or suffered by the mortgagee did not supersede that covenant. The vendor could have sued for a breach of it on and after February 1, 1923, and could have compelled payment, notwithstanding the extension. The general theory of our past cases on this subject is that the assumption of a mortgage by a vendee of land operates as a mere gratuity to the mortgagee. His rights thereunder spring from the express agreement of the parties, made in his behalf as a third party. As we said recently in Shult v. Doyle, 200 Iowa 1:

"The cause of action thus created in his favor is a bit of legal grace; it cost him nothing; it simply fell upon him, without effort or knowledge on his part. He is entitled to it, such as it is. He has no ground of appeal to equity, either to expand it or to prevent its shrinkage."

Various phases of the question are considered in the authorities above cited, and we see nothing to be gained herein by an extended review of them.

II. It is contended by the appellant that our previous holdings, as above set forth, have all been superseded by the enactment of Section 9581, Code of 1924, in the Negotiable Instruments Law, which provides as follows:

"9581. When persons secondarily liable on — discharged. A person secondarily liable on the instrument is discharged:

"1. By an act which discharges the instrument.

"2. By the intentional cancellation of his signature by the holder.

"3. By the discharge of a prior party.

"4. By the valid tender of payment made by a prior party.

"5. By a release of the principal debtor, unless the holder's right of recourse against the party secondarily liable is expressly reserved.

"6. By an agreement binding upon the holder to extend the time of payment, or to postpone the holder's right to enforce the instrument, unless made with the assent of the party secondarily liable, or unless the right of recourse against such party is expressly reserved."

It is urged that this section is conclusive of the whole question. The essential ground of this contention is that the defendant was "secondarily liable" only. But the holding of our cases, as already indicated, is that, as between mortgagor and mortgagee, the liability of the mortgagor does not become secondary. The liability of the assumptor is upon his covenant in the deed. An action against him must be predicated upon such covenant, whether brought by vendee or by mortgagee. Such is the clear purport of our past holdings, and they are not affected by the enactment of Section 9581.

III. It is further urged by the appellant that our previous cases should be deemed overruled by a decision of the Supreme Court of the United States, or else that we should overrule the same in deference to such decision. The case cited is Union Mut.Life Ins. Co. v. Hanford, 143 U.S. 187. In the cited case, the mortgage involved in the foreclosure was an Illinois contract. The plaintiff brought his suit in the Federal court, invoking the jurisdiction thereof on the ground of diverse citizenship. It involved the question here under consideration. The Supreme Court held that the question presented must be decided under Illinois law. Illinois is one of the states wherein the rule contended for by the defendant is recognized. The Supreme Court applied such rule to the case before it in obedience to the law of Illinois. This is only to say that, if the mortgage had been an Iowa contract, the Supreme Court would have enforced the contrary rule, in obedience to Iowa law. The decision relied on presents no conflict, as between us and the Supreme Court of the United States. It does disclose a diversity of decision as between the higher courts of the two states. Such diversities of human judgment are unavoidable in some degree. When they occur, neither court is at liberty to ignore its own decisions in deference to those of another, because its own decisions have become the law of the state and a rule of property.

The judgment of the district court was properly obedient to the rule long established in this state. It is, accordingly, —Affirmed.

ALBERT, C.J., and STEVENS, FAVILLE, MORLING, and WAGNER, JJ., concur.

De GRAFF and KINDIG, JJ., dissent.