
    Teeters v. Lamborn.
    
      Promise of debtor to second mortgagee to remove lien of first mortgage, whether valid— Whether within statute of frauds — Extension of time by mortgagee to purchaser of premises — Effect upon debtor.
    
    1. A dobtov executed a note and second mortgage to his creditor, and afterward, in consideration that the creditor would relieve him from personal liability on the note, and look solely to the mortgage for payment, agreed to remove and discharge the first mortgage, so that the second should become the first lien on the premises, whereupon the creditor released, in writing, the, debtor from personal liability on the note. ' Held: 1. The promise of the debtor to remove and discharge the first mortgage is valid. 2. Such promise is not within the statute of frauds, and need not be in writing.
    
      2. A debtor who has given a note secured by a mortgage on real estate to his creditor sells the mortgaged premises to a third person, who, in part consideration of the purchase, assumes and agrees with his vendor to pay the mortgage debt, of all which the creditor has notice. Afterward, without the knowledge of the debtor, the creditor agrees with the purchaser, in consideration of the payment of interest in advance, to extend the time of payment. Held: 1. By such extension of time the debtor is not discharged from all liability on the note. 2. That, in equity, such debtor is released from liability to the extent of his loss by reason of such extension.
    Error to the District Court of Stark county.
    The record before us for review is quite complicated, being the records of two causes pending in the court of common pleas of Stark county, which were consolidated and tried together by order of the court. We will state only so much of the ease as is necessary to understand the questions decided.
    The action first commenced, and numbered 699, was brought by Levi L. Lamborn against Teeters & Son on a promissory note given on May 81, 1870, by defendants to plaintiff, for $9,858, with eight per cent, interest, payable in one year.
    This note was secured by mortgage on certain real estate owned by the makers, which mortgage was subject to a prior mortgage lien for $4,000, held by one P. C. Hull on the same premises.
    The defendants answered :
    Eirst defense. That on July 14, 1873, the plaintiff, being then the owner of the note and mortgage, by a certain written agreement did discharge and release them from all personal liability on said note, and did agree to look solely to the mortgage lien for satisfaction thereof, in consideration, among other things, of the agreement of said defendants to remove and discharge the priority of the Hull mortgage on said premises, so that said plaintiff’s mortgage lien should become the first lien thereon.
    Second defense. That on June 5, 1873, the defendants sold said mortgaged premises to one II. E. Rawson, subject to said mortgages of Hull and plaintiff, and tha't Rawson, as part of the purchase-money and price, did agree with defendants that he would assume and pay to plaintiff the debt secured by his said mortgage, and that plaintiff knew of said agreement and assumption and assented thereto ; that afterward, on July 1, 1878, said Rawson sold said mortgaged premises to one Silas Bigelow, who agreed, as part of the consideration of the purchase of said premises, to assume to pay the said mortgage debt so held by plaintiff; that the plaintiff had knowledge of the assumption and agreement of Bigelow and assented thereto, and adopted him, Bigalow, as his sole debtor for said debt; that' afterward, on November 20, 1873, said plaintiff entered into an agreement with said Bigelow to extend the time of payment of said debt, and did receive from him interest in advance for the period of ninety days, without the knowledge or consent of defendants.
    The plaintiff demurred to these defenses. The demurrerto the first was sustained; but the demurrer to the second was overruled. Thereupon the plaintiff replied to the second defense, denying the facts therein set forth.
    On the issue thus joined the case was tried, and judgment rendered for the defendants.
    A motion for a new trial, on the ground that the judgment was contrary to the law and contrary to the evidence, was overruled, and a bill of exceptions containing all the testimony was made part of the record.
    The action consolidated with the foregoing was numbered 970, brought by same plaintiff against same defendants. The following is a copy of the petition :
    “The said plaintiff says that, on the 31st day of May, 1870, the said defendants, who were then partners in the banking business, by the firm name of E. Teeters & Son, for a valuable consideration, executed, in the name of said firm, and delivered to the plaintiff their promissory note of that date, for the payment of the sum of $9,858 to the plaintiff, or order, one year after date, with eight per cent, interest, to be paid semi-annually.
    “Before the maturity of said note the plaintiff assigned the same to Lydia B. Clayton; and, on the 2lst day of November, 1871, while she was the owner thereof, the defendant, Richard W. Teeters, executed and delivered to her, to secure the payment of said note, his mortgage deed of that date, whereby he conveyed to her, her heirs and assigns forever, lots numbered sixty and sixty-one, in E. Teeters’ addition to the incorporated village of Alliance, in said county of Stark, which mortgage was left for record on the 12th day of December, 1871, and duly recorded on the 30th of the same month.
    “Prior to the 14th day of July, 1873, the said Lydia B. Clayton, for a valuable consideration, reassigned said note and transferred said mortgage to the plaintiff. Said mortgage was subject to a prior mortgage on the same real estate, executed and delivered to one Patrick C. Hull on the 1st of June, 1870, and duly recorded, to secure the payment of a promissory note, of the same date, for the sum of $4,000.
    “ On the 14th day of July, 1873, the plaintiff, being then the owner of said note and mortgage first described, made and entered into a written contract of that date with the defendants, which was signed by the plaintiff, and by him delivered to the defendants, who accepted and assented to the same, whereby the defendants agreed, in consideration of the plaintiff’s part thereof, to remove and discharge the priority of said Hull’s mortgage, so that the one held by the plaintiff, as aforesaid, should come in as a first lien upon said real estate, for the purpose of payment in case of a foreclosure. In consideration of which agreement of the defendants, and for no other or further consideration, the said plaintiff, by said contract, agreed to look for the satisfaction of his said note to the said mortgaged premises, a copy of which written contract is hereto attached and herewith filed and made a part of this petition.
    “The plaintiff further says he was always ready and willing and offered defendants to duly perform the conditions of said contract on his part to be performed, but the defendants were unwilling and failed and refused, in any manner, to remove or discharge the priority of said Hull’s mortgage, so that said mortgage of plaintiff' should, or could, come in as a first lien on said premises in case of foreclosure, for the purpose of payment. On the contrary, on the 11th day of October, 1873, the said Hull commenced an action in this court to foreclose his said mortgage ; in which action the plaintiff, the defendants and others were made defendants, and duly served with a summons; and such proceedings were had in said action that both mortgages were foreclosed therein, and that of said Hull was adjudged to have priority over that of the plaintiff, and said real estate was ordered to be sold in said action, and the sheriff was ordered, out of the proceeds of sale, to pay : first, the costs; second, the amount of the decree on the said mortgage of said Hull, to wit, the sum of $4,030.50, with interest from September 17, 1874; and, third, the amount found due the plaintiff on his said mortgage, to wit, the sum of $9,506.22. 'Afterward, one William P. Martin was, on his own motion, made a defendant in said action, and set up a lien on said premises arising out of a purchase of the same at tax sale ; and the court ordered tbe said sheriff, out of the proceeds of the sale of said real estate to pay to said Martin, the sum of $1,328.
    “ The sheriff, under said order, sold said real estate for the sum of $8,667, out of which he paid, first, the costs, amounting to $317.90; second, said sum of $1,328 to said Martin; third, on the 27th of August, 1878, in full of said Hull decree, the sum of $4,943.37; and, fourth, on the 23d of July, 1878, to the plaintiff, on his said decree, the sum of $1,318.16; and on the 6th of December, 1878, the further sum of $620 on the same, making together the sum of $1,938.16, which is the entire sum the plaintiff has received or can realize on his said claim out of said premises ; and, after giving defendants credit for said sum, and also for all other payments made on the same, there still remains due to the plaintiff thereon a sum exceeding $8,500.
    “ If the defendants, within a reasonable time after making said contract, had removed or discharged the priority of the said Hull mortgage, as by said contract they were bound to do, the said mortgage owned by plaintiff" would have been full security for his said claim; but, in consequence of the failure and refusal of defendants to do so, thereby violating and breaking their said contract, the plaintiff'has only been able to and can realize out of said mortgage property, on his suit claimed, said sum of $1,938.16, to the damage of plaintiff in the sum of $9,000.
    “ Wherefore, plaintiff demands judgment against defendants for said sum of $9,000, his damages sustained, as aforesaid; or, if necessary and effectual, to give the plaintiff an adequate and full remedy for defendants’ said breaches of contract, that the court may adjudge and declare said contract rescinded and annulled, and for other proper relief.
    “ S. V. Essicit,
    “Erease & Case,
    
      “Attorneys for Plaintiff.”
    
    
      Copy of written agreement referred to in the petition.
    
    “ Be it remembered that, on the 31st day of May, 1870? the firm of E. Teeters & Son executed their note of hand for the sum of nine thousand eight hundred and fifty-eight dollars, payable to L. L. Lamborn, in one year from the date thereof; and that whereas, said Lamborn, before the maturity of said note, assigned the same to one Lydia B. Clayton; and that whereas, after said note became due, to wit, on the 21st day of November, 1871, at the request of said Lydia B. Clayton, R. W. Teeters, one of the firm of E. Teeters & Son, for the purpose of securing said note, then executed his certain mortgage deed on lots Nos. 60 and 61, in E. Teeters’ addition to Alliance, Ohio, as will more fully appear by reference to the mortgage lien records of Stark county ; and that whereas, since said 21st day of November, 1871, the said L. L. Lamborn has again become the owner of said note and mortgage; and that whereas, said mortgage is now, at this date, the second lien upon said lots 60 and 61, and being subject in its priority to one held by P. C. Hull for four thousand dollars. Now, in consideration of an agreement on the part of said E. and R. W. Teeters to remove and discharge the priority of said Hull’s mortgage, so that the one held and owned by me shall come in as afirst lien upon said lots, for the purpose of payment in ease of a foreclosure, I now hereby, for divers valuable considerations received, do hereby discharge Elisha and R. W. Teeters from any personal liability on said notes so secured by said mortgage lien, and now hereby, by these presents, agree to look for the satisfaction of said note to the mortgaged premises alone.
    “ July 14, 1873. [Signed.] L. L. Lamborn.
    “Attest: Jambs Amerman.”
    To this petition the defendants demurred, and the court of common pleas sustained the demurrer, and final judgment was rendered for defendants.
    On petition in error, the judgments on the consolidated actions were reversed.
    This proceeding is prosecuted to reverse the judgment of reversal.
    
      J. J. Parker, for plaintiff in error.
    It appears by the petition that the Teeters did not agree in writing to pay the debt, and the demurrer to the petition raises the question of the statute of frauds. Brandt on Sureties, §§ 60, 61 et seq.; Sturges v. Burton, 8 Ohio St. 215. The right of the plaintiff, Lamborn, to recover on the writing, even if the writing had been signed by the Teeters, depended not on Lamborn’s willingness and readiness to perform his agreements therein specified, but also on the condition that he absolutely discharged' the defendants from any liability on the note of May 31, 1870. The petition does not state that Lamborn has discharged the Teeters from that note.
    
      We contend that when an owner of land owes a debt, secured by mortgage given by him thereon, sells the land, and the purchaser assumes to pay the debt so secured by mortgage as a part of the consideration, that such purchaser is legally bound to pay the debt, and the creditor may maintain an action on the promise against the purchaser; that where such purchaser so assumes the payment of the mortgage debt he becomes the principal debtor for the debt, and the original debtor is only the surety, and if the creditor, with a knowledge of the contract in regard to the assumption of the debt by the purchaser, accepts him as the debtor, that he has no longer any claim against the original debtor for the debt. We admit that unless it appears that the creditor has released the original debtor, the original debtor still remains liable, but only as surety; and, if the time or the payment of the debt be extended by agreement between the purchaser and the creditor, without the knowledge or consent of the original debtor, that such extension releases the original debtor. 6 Moak Eng. Rep. 642; 11 Moak Eng. Rep. 27; 69 N. Y. 280 ; s. c., 25 American Rep. 195, with a full note; 124 Mass. 254; 26 N. J. Eq. 504; 36 Mo. 384; 73 N. Y. 215.
    The relation of principal and surety may arise after the original contract is entered into. 11 Ohio, 444.
    If a creditor learns of the relation of surety to his debt he will release the surety if he extends the time for payment. 11 Moak Eng. Rep. 27, and note.
    The fact that Lamborn did accept the promise of Bigelow may be proven by the receipt by him of interest from Bigelow.
    The deed to Bigelow was notice to Lamborn. 25 Moak Eng. Rep. 644; 76 N. Y. 274.
    The receipt of interest in advance is evidence of an extension of time. 26 Ill. 282 ; Brandt on Sureties, § 305.
    
      Frease Case, for defendant in error.
    I. a. The statute of frauds should have been set up by answer. Ogden v. Ogden, 4 Ohio St. 191; Seymour v. Mitchel, 2 Root (Conn.), 145.
    
      b. A contract will never be defeated by the statute of frauds, unless it be affirmatively shown to be within that statute. See cases above cited.
    
      c. That the statute of frauds may apply, it must appear that the promise to pay the debt of another, was made to the original promisee of that debt. In this case the promise should have been made to Hull. Brandt on Suretyship, § 58, and cases cited.
    
      d. Butfif we are wrong in both the last positions we yet maintain that their contract was not within that statute, because it appears by it “'that the main purpose and object of the promisors was not to answer for another, but to sub-serve some pecuniary and business purpose of their own involving a benefit to themselves, and a damage to the other contracting party.”
    
      e. The benefit to themselves was to be discharged from the Lamborn debt, and the damage to Lamborn the loss of their personal liability. Brown on the Statute of Frauds, sec. 212, note 1; Emerson v. Slater, 22 How. (U. S.) 28; Brandt on Suretyship, sec. 56, and cases there cited.
    II. a. It was not necessary that the petition should show that Lamborn performed his part of the contract. Lam-born was not bound to do any thing. By paying off the Hull mortgage, the Teeters would, ipso facto, have been discharged. No technical release would have been required.
    
      b. But if we are mistaken in this, we insist that at most Lamborn was not required to release, except concurrently with performance by the Teeters. Readiness to perform was all that -was required of him, until they were also ready.
    III. a. Payment of and receiving interest in advance is not, in itself, an agreement to extend time, and certainly not when the creditor refuses to extend time. Bank v. Bishop, 6 Gray, 317; Brandt on Suretyship, sec. 305; 8 Gin. Law Bull. (Dec. 11, 1882), 306; Rawson v. Taylor, 30 Ohio St. 405; Gard v. Neff, 39 Ohio St. 607. It is equivalent to the reservation of a right to sue. Osborn v. Low, 40 Ohio St. 347.
    
      b: Did Lamborn know, if he extended the time, that Bigelow had assumed his mortgage debt?
    Such knowledge was necessary, else he could not be held to know that Bigelow had become principal and the Teeters only sureties.
    "We deny that the law, in this state, is that where a mortgagee has knowledge that his mortgagor has sold the mortgaged premises to a purchaser, who as a part of the purchase price has assumed the mortgage debt, and with such knowledge extends the time of payment of the debt, for a sufficient consideration, by an agreement with the purchaser, without the consent of the mortgagor; that this, in itself, discharges the mortgagor from the debt, or, as between him and the mortgagee, converts the purchaser into the principal, and the mortgagor into the surety, only, in the debt. Lawson v. Taylor, 30 Ohio St. 389, and Maingay v. Lewis, 3 Irish R. C. L. 495, there cited; Meyer v. Lathrop, 10 Hun. 66; affirmed in 73 N. Y. 315; Corbett v. Waterman, 11 Iowa, 87.
   McIlvaine, G. J.

Ve will first consider the questions raised by the demurrer to the petition in case No. 970. The cause of action contained therein may be stated thus: The defendants, in consideration that plaintiff would release them from personal liability on the note held by him against them, and look to the mortgage security solely for his pay, promised the plaintiff to remove and discharge the prior lien of Hull upon the mortgaged premises, so that the plaintiff’s mortgage would become the first lien thereon. The debt for which Hull held a lien was the defendants’ debt, and they were the owners of the equity of redemption.

The plaintiff released the personal liability of defendants in writing, but the defendants failed to perform their promise. Hull’s mortgage was foreclosed and was held to be a prior lien to that- of plaintiff. Of'the proceeds of mortgaged premises Hull received $4,9-13.37, leaving a balance insufficient to satisfy plaintiff’s claim.

We can see no defect in tbe cause of action thus stated. It is contended by plaintiffs in error that the petition did not state facts sufficient to constitute a cause of action, inasmuch as it did not aver “that defendants had agreed in writing to pay the debt due to Hull.” It was not necessary to so aver. The debt to Hull was their own debt and not the “debt of another.” The case was not within the •statute of frauds. It was sufficient to allege a verbal promise.

It is also contended that it was not alleged that Lam-born had released defendants from personal liability on the note. We understand from the petition that such release was actually made.

Eor error in sustaining the demurrer to this petition, we think the judgment of the court of common pleas was rightfully reversed by the district court.

If the facts be as stated in the petition in case 970, or as stated in thq first defense in the answer in case 699, as they are admitted by the demurrer to be, the personal liability of defendants below' on the note sued on in case 699 can not be maintained, and as such personal liability is the only contention in 699, it would follow that the matter set up in the second defense in the answer in case 699 would be wholly unimportant and immaterial betw’een the parties. True, the demurrer to the first defense was sustained, but as final judgment in the case was rendered for the defendants, no complaint as to that.ruling on the demurrer was made in the district court and none is made here, yet it follow's from what has been said above as to the sufficiency of the petition in 970, that the demurrer to the first defense in 699 ought to have been overruled.

The admission of the facts by the demurrer, however, is to be regarded only for the purposes of the demurrer, and if it turn out that the facts so pleaded be not true, the matters set up in the second defense, upon which issue was taken by reply, become material in the case.

The matters relied on in the second defense raise this question : Where a mortgagor sells the mortgaged premises to a third person who, as part of the price, assumes and agrees with the mortgagor to pay the mortgage debt, of which assumption the mortgagee has notice, does an agreement with the purchaser by the mortgagee to extend the payment of the mortgage debt, without the consent of the mortgagor, discharge the mortgagor from personal liability to pay the debt?

The question raised here does not involve the element of novation of the debt, as it is clear from the testimony that the mortgagee did not agree to accept the purchaser as his sole debtor.

The point relied on by plaintiffs in error is, that after such assumption by the purchaser he becomes the principal debtor, and the maker of the note is his surety merely, so that the familiar doctrine applies, that the giving of additional time for payment by the creditor to the principal debtor, by a valid agreement between them, without.the knowledge or consent of the surety, releases the surety.

The solution of this question, we think, depends upon another. It may be admitted that as between mortgagor and purchaser, the relation of principal and surety exists, but, whether the creditor is effected thereby is another question. We are aware that decided cases differ upon this point. Boardman v. Larrabee, 51 Conn. 89; Murray v. Marshall, 94 N. Y. 611.

In our own state, the general doctrine is discussed in Ide v. Churchill, 14 Ohio St. 372, but the exact point is not decided. It is, however, laid down that “any material alteration of the terms of the agreement to which the surety acceded, made by a valid agreement between the principal parties, without his consent, will work his entire discharge from all liability; but where the original obligation remains unchanged, and only his equitable rights or remedies have been invaded by the wrongful act or omission of the creditor, he will be relieved only to the extent of his actual injury.”

At the time the note in suit was executed, Teeters & Son became absolutely and in all events bound to Lamborn for the payment thereof. This obligation was without condition, and no alteration has been since made by the contracting parties.

Teeters & Son afterward, for a valuable consideration, obtained a promise from a third person to pay the note, whereof the payee had notice, but he was not a party to this contract. True, he consented to receive payment if tendered from the third person, but he did not consent to look to such third person as his sole or even principal debtor. The obligation of the makers of the note as to him remained as it was when the note was executed.

The fact that the creditor could enforce the promise of the purchaser by action in his own name does not change the legal relations between the parties. The right to such remedy on collateral securities held by the creditor would also exist, but the relation of creditor and principal debtor existing between the parties to the note is not thereby changed.

No doubt any loss sustained by the debtor by reason of the extension of the time of payment given by the creditor to the purchaser would, pro tanto, discharge the debtor, but we can find no good reason for holding that the mere facts of such extension should, ipso facto, discharge the debtor from, his liability to pay the whole or any portion of the debt,-whether or not any loss resulted from such extension.

The second defense does not allege auy loss or damage to the defendants by reason of the extension. We are of opinion, therefore, that it did not state facts sufficient-to constitute a defense to the action.

Judgment affirmed.  