Case Name: THOMPSON et al., Respondents, v. LINCOLN NATIONAL LIFE INSURANCE CO., Appellant
Court: Montana Supreme Court
Jurisdiction: Montana
Decision Date: 1943-06-11
Citations: 114 Mont. 521
Docket Number: No. 8342
Parties: THOMPSON et al., Respondents, v. LINCOLN NATIONAL LIFE INSURANCE CO., Appellant.
Judges: Associate Justices Morris and Anderson concur.
Reporter: Montana Reports
Volume: 114
Pages: 521–550

Head Matter:
THOMPSON et al., Respondents, v. LINCOLN NATIONAL LIFE INSURANCE CO., Appellant.
(No. 8342.)
(Submitted January 14, 1943.
Decided June 11, 1943.)
[138 Pac. (2d) 951.]
Messrs. Speer & Hoffman, for Relator, submitted a brief; Mr. Harvey B. Hoffman argued the cause orally.
Messrs. Murch <& Wuerthner, for Respondents, submitted a, brief; Mr. Clarence W. Murch argued the cause orally.

Opinion:
MR. CHIEF JUSTICE JOHNSON
delivered the opinion of the court.
Defendant appeals from a judgment entered against it on a jury verdict. There are twenty-five specifications of error, but the only one necessary to consider is whether the trial court erred in overruling defendant's motion for a directed verdict.
The plaintiffs are the administratrices of the estate of S. E. Brokaw, deceased. In Thompson v. Lincoln National Life Insurance Co., 110 Mont. 521, 105 P. 2d 683, their amended complaint was held good as against a general and special demurrer. It sought damages for breach of a contract made by the Northern States Life Insurance Company for the sale of land to Brokaw, alleging that the defendant had assumed the vendor's obligations and liabilities under the contract but had refused performance. Plaintiffs sought and in the judgment now appealed from were awarded a verdict and judgment for $2,403.38, which had been paid by Brokaw to the vendor before the latter had become insolvent and the contract had been assigned to defendant.
The undisputed facts, as shown by the pleadings and the evidence, are that in 1926 Brokaw entered into a written contract with the Northern States Life Insurance Company for the purchase of 160 acres of land in Teton county, Montana, for $3,000, payable $500 each year from 1926 to 1931, inclusive, with interest, of which he paid $1,500 on the purchase price and $904.38 as interest and taxes before the defendant became interested in the property; that the contract was placed on public record in 1931; that at some time prior to May 23, 1933, the vendor became insolvent and that on that date its receiver, pursuant to court order, conveyed the land to defendant and assigned to it the vendor's right, title and interest under the contract without any special agreement by defendant to assume the vendor's obligations or to refund to Brokaw the money paid by him to the vendor before its insolvency; that nothing had ever been paid defendant under the contract; that on February 8, 1934, when the contract had been in default for some five years, the defendant, by registered letter from its vice president at its home office at Fort Wayne, Indiana, gave notice, received by plaintiffs on February 13th, that unless the balance of $1,745 principal and interest due under the contract should be paid on or before March 19, 1934, plaintiff's contract rights would be cancelled, all as provided by the contract; that after that time numerous letters were written plaintiffs by defendant's collection officer at Fargo, North Dakota, whose authority extended only to the making of collections and not to the making or alteration of contracts; that all the letters written before the cancellation date inquired as to plaintiffs' progress in their application for a federal loan sufficient to pay the amount due and offered to assist those efforts; that all the letters written after that date, without exception, related to a crop rental lease desired by defendant for the crop year of 1934, indicating that the land contract had been terminated; that the only objection made by plaintiffs to the lease concerned the summer-fallowing. A statement made in one of those letters, which was written on April 21st, that the lease could be cancelled if the federal loan should be completed before harvest, when the crop rent would become due, is relied on by plaintiffs as a waiver of the cancellation notice.
On June 12, 1934, defendant notified plaintiffs by letter, introduced by plaintiffs as evidence in the case, that arrangements had been made to sell the property to Jacob Luinstra, and on August 24th defendant made a written contract to sell, and on November 26, 1934, conveyed the land to Jacob Luinstra, subject to the rights of the persons then in possession thereof, for $1,600, by a deed which was recorded on September 21, 1935; that from 1926 Brokaw until his death, and thereafter the plaintiffs, were in possession of the land until Luinstra took possession in November, 1934, apparently after completing the purchase.
On September 20, 1934, plaintiffs wrote defendant, not tendering the money, but expressing a readiness to pay; the evidence showed that they did not then have the money but had been promised it by the husband of one of the plaintiffs, who expected to get it from his wheat crop, the harvest of which had not yet been finished. The record does not show when the crop was sold or when the money was actually available, if at all. Plaintiffs wrote again on December 10th, referring to their letter of September 20th.
The amended complaint alleged that upon the assignment defendant assumed all the obligations and liabilities of the insolvent vendor. The answer denied that allegation, and admitted only that the contract was assigned to defendant. The only evidence on the point is that the assignment was as follows:
"For Value Received, the undersigned, Northern States Life Insurance Company, a corporation, of Hammond, Lake County, Indiana, acting by and through John W. Northland, its duly appointed, qualified and acting Receiver, in pursuance of a specific order of the Lake Superior Court, Room No. 2, Lake County, Indiana, made and entered April 4th, 1933, does hereby assign, transfer and set over to the Lincoln National Life Insurance Company, of Fort Wayne, Indiana, its successors and assigns, all of the right, title and interest of said Northern States Life Insurance Company, and the right, title and interest of said Receiver, in and to that certain Contract for Deed entered into by and between the Northern States Life Insurance Company and S. E. Brokaw, dated July 30, 1926, and covering real estate situated in Teton County, Montana."
The amended complaint further alleged that the defendant breached the contract by conveying to Luinstra by a deed which "did not reserve and protect the rights of the Brokaw Estate under and pursuant to said contract of sale by and between the defendant's predecessor in interest and plaintiffs' deceased." The answer denied that allegation and in paragraph VIII alleged that its contract of sale and conveyance to Luinstra was "subject to the rights of the parties then in possession, and conveyed only the right, title and interest of the defendant," and that the plaintiffs were then in possession. Plaintiffs' reply affirmatively alleged that defendant contracted to sell the property to Lninstra "as in paragraph VIII of the defendant's answer is alleged."
Plaintiffs' contentions are (1) that defendant assumed all of the insolvent vendor's obligations and liabilities under the contract, thus subjecting itself to any remedy plaintiffs might elect for breach of contract; (2) that defendant waived the cancellation notice, thus restoring the contract to full effect; (3) that defendant breached the contract by the sale to Luinstra without reservation of plaintiffs' rights; (4) that plaintiffs' letters of September 20 and December 10, 1934, constituted tenders of the balance due; and (5) that because of defendant's refusal to convey the land it became liable to pay as damages the entire $2,040.38, paid by Brokaw to the vendor, defendant's insolvent assignor, as principal, interest and taxes, without regard to the value of the right of possession enjoyed by Brokaw and the plaintiffs for over eight years.
It should be borne in mind that defendant is not the contracting party as vendor under the land contract, had no privity therein, made no special agreement with the vendor or the vendee in connection with the assignment of the vendor's interest in the property and the contract, or otherwise, and that any liability incurred in the premises must have resulted solely from the assignment of the contract and the conveyance of the property to defendant. It should be remembered also that the vendor did not, by the assignment to defendant, seek to evade plaintiffs' right under certain circumstances to recover from it the payments theretofore made, or to enforce against it the vendee's lien therefor, or to collect from it damages for a breach; those rights had been altered, if not entirely destroyed, by the vendor's insolvency.
The assignee of an executory contract does not, merely by accepting the assignment, or by succeeding to the property subject to the contract, assume the obligations imposed by the contract on the assignor. (Lavelle v. Gordon, 15 Mont. 515, 39 Pac. 740; Apple v. Edwards, 92 Mont. 524, 16 Pac. (2d) 700, 87 A. L. R. 179; 6 C. J. S. Assignments, p. 1162, sec. 107; 4 Am. Jur. 310, sec. 102.) Accordingly, neither the defendant nor Luinstra succeeded to any contractual liability of the vendor by virtue of the mere assignments or conveyances to them. Apparently the plaintiffs recognized that fact, for they pleaded affirmatively that the defendant had assumed the obligations of the vendor under the contract, which, if true, would have subjected it to an action for damages in case of breach of contract by it. (Bach, Cory & Co., Ltd. v. Boston & M. Consolidated Copper & Silver Mining Co., 16 Mont. 467, 41 Pac. 75; Miller v. Beck, 72 Or. 140, 142 Pac. 603; Stewart v. Mann, 85 Or. 68, 165 Pac. 590, 1169.) Since they have failed to substantiate that allegation, their case has failed.
Not having assumed the vendor's obligations under the contract but merely having succeeded to the ownership of the property involved, subject to plaintiffs' rights under the contract, neither defendant nor Luinstra became a party to it so as to be liable for damages for its breach. The same is, of course, true of the plaintiffs or other successors or assignees of the purchaser. Thus it was held in Bimrose v. Matthews, 78 Wash. 32, 138 Pac. 319, that neither the assignee of the vendor nor the assignee of the vendee assumes the assignor's obligations, although each by virtue of the assignment succeeds to the assignor's rights.
An obligation arises either from the contract of the parties or by operation of law. (Sec. 7395, Rev. Codes.) In this case, since the defendant did not assume the vendor's contractual obligation, its liabilities and plaintiffs' right against it are not contractual. Hence the plaintiffs have no election of remedies against defendant as for breach of contract.
If, however, an obligation was imposed upon defendant by operation of law, and if that obligation was breached by defend ant, the plaintiffs may elect any remedy afforded by law for such breach.
There is no doubt that an obligation to recognize plaintiffs' equitable right resulting from the contract was imposed upon defendant by operation of law. Pomeroy's Specific Performance of Contracts, Third Edition, states the rule at section 465.1 as follows: "The doctrine is well settled that when the vendor, after entering into a contract of sale, conveys the land to a third person who has knowledge or notice of the prior agreement, such grantee takes the land impressed with the trust in favor of the original vendee, and holds it as trustee for such vendee, and can be compelled at the suit of the vendee to specifically perform the agreement by conveying the land in the same manner, and to the same extent, as the vendor would have been liable to do, had he not transferred the legal title; and such grantee is the proper defendant in the suit against whom to demand the remedy of a conveyance." For statements of the rule, which seems without exception, see, also, Maupin on Marketable Title to Real Estate, Third Edition, 521, and 58 C. J. 921, sec. 86. Some of the decisions following the rule are Boyd v. Brinckin, 55 Cal. 427; Copple v. Aigeltinger, 167 Cal. 706, 140 Pac. 1073; and Frank v. Stratford-Handcock, 13 Wyo. 37, 77 Pac. 134, 67 L. R. A. 571, 110 Am. St. Rep. 963. In the latter case the agreement seems to have been an option rather than a contract of purchase and sale.
In Irvine v. Hawkins, 20 Nev. 384, 22 Pac. 240, 241, the court said, quoting from Bruce v. Tilson, 25 N. Y. 194, 197: "The distinction between an action for a specific performance in equity and a suit at law for damages, for nonperformance, is this: that in the latter, the right of action grows out- of a breach of the contract, and a breach must exist, before the commencement of the action, while in the former, the contract itself, and not a breach of it, gives the action."
And while in the absence of assumption of contractual liability, the contract itself gives the right of action, it does so only by impressing upon the property a trust interest, the obligation •of which is imposed upon the assignee by law, and not by the •contract, to which he is not a party. On the other hand, in Miller v. Beck and in Stewart v. Mann, supra, the Oregon court held that where the intervening, purchaser agreed to .assume the contract, there was a "quasi privity" on his part, which made him liable for a breach of the contract itself. The .Montana case of Bach, Cory & Co., Ltd., v. Boston & M. Consolidated Copper & Silver Mining Co., supra, is to the same effect.
It is not true, as stated in the dissent, that by the original .contract "the buyer Brokaw and his successors in interest became obligated to pay the contract price and the taxes, and the seller and its successors in interest became obligated to deliver a deed" when the price was paid. It is elementary .law that a contract binds no one but the contracting parties. Brokaw's successors in interest never became obligated to pay .anything; neither the • defendant nor its assignor could have compelled them to pay a cent. It is equally untrue that the .seller's successors in interest became obligated to do anything by the mere force of the contract. Only by assuming the contract could they become obligated by it. Moreover, as herein.after shown, it was only by succeeding to the property with noiice, actual or constructive, of plaintiff's possible interest, that as to defendant the land was impressed with a trust to that extent.
The dissent perforce admits the undeniable rule that the .assignment of a contract does not ordinarily operate to cast the contract liabilities upon the assignee in the absence of an assumption thereof by him. The dissent further says, what is •obvious, that the assignee may assume the assignor's liabilities, that under certain circumstances and conduct the law will im-ply such assumption, and that he may not enforce the contract without performing its terms. But here the assignee did not .-assume the assignor's liabilities, it could not possibly enforce the contract against the plaintiffs and made no attempt to do so, and no circumstance nor conduct is pointed out from which the law may imply any assumption of contractual liabilities. The fact that the defendant requested payment and gave notice of termination cannot be construed as implying an assumption of contract liability. It had succeeded to the title and to the vendor's equity in the contract, necessarily subject to plaintiffs' equity under the contract. The latter did not by its terms expire automatically upon a default in payment; if it had, it would have expired some five years before. Unless defendant was content to permit the plaintiffs to continue holding and using the land indefinitely without further payment, it necessarily had to request payment and finally to give the notice of termination necessitated by the contract upon which plaintiffs' equity depended. Neither plaintiffs' argument nor the dissenting opinion mentions any conduct on defendant's part which could have turned the latter's trustee status into a promisor's status.
In this ease, the defendant not having assumed the obligation of the contract, but merely having succeeded to the vendor's right, which was to hold the title subject to the purchaser's equity under the contract, its liability is based, not on the theory that by receiving the title under those circumstances it became a party to the contract so as to incur contractual liability, but on the ground that by operation of law it became a trustee for the vendee to the extent of the latter's rights.
It has been held that such trusteeship arises by one's succeeding to the title subject to or with actual knowledge of the purchaser's rights (Henderson v. Grammar, 66 Cal. 332, 5 Pac. 488; Cannon v. Handley, 72 Cal. 133, 13 Pac. 315; Jackson v. Hyde, 91 Cal. 463, 27 Pac. 759) or by notice imputed by the purchaser's possession (Connecticut Fire Ins. Co. v. Colorado Leasing, Mining & Milling Co., 50 Colo. 424, 116 Pac. 154, Ann. Cas. 1912C, 597), or by notice imputed by the prior recording of the sale contract (Irvine v. Hawkins, supra), or by any other circumstance sufficient to put a prudent man upon inquiry so as to impute notice of the fact itself. (Anthis v. Sandlin, 149 Okl. 126, 299 Pac. 458.)
As noted above, plaintiffs affirmatively pleaded in their complaint that the contract was placed on record in 1931, and that the plaintiffs, as the purchaser's personal representatives, were in possession of the land until ousted thereof by Luinstra in November, 1934; and their reply admits the defendant's conveyance to the latter "as in the defendant's answer is alleged," which was that the conveyance was only of defendant's right, title and interest, and subject to the rights of the parties in possession. It is apparent, therefore, that upon this record plaintiffs cannot contend that Luinstra did not succeed to the trusteeship as fully as defendant had done, or that by the conveyance to him defendant breached the obligation imposed on it by law.
From the very nature of the trust relationship, it is immaterial, and the courts have made no distinction, whether it arises from succession to the property with mere knowledge of purchaser's rights, or with an express assignment of the vendor's right to the unpaid balance of the contract purchase price. For it is clear that in any event the intervening purchaser is entitled to the vendor's entire interest in the property, and therefore to the unpaid purchase money outstanding on the prior sale. (Witt v. Boothe, 98 Kan. 554, 158 Pac. 851.) Otherwise he would get nothing by purchasing subject to the prior contract unless the original purchaser should default. It is clear, also, that since he is the one from whom the conveyance must run, and is the one entitled to the money, he is the one to whom a tender, or an offer to pay (coupled with ability to pay) should be made (Thomas v. Derrick, (Tex. Civ. App.) 207 S. W. 140; Grand Lodge of Brotherhood of Railroad Trainmen v. Clark, 189 Ind. 373, 127 N. E. 280, 18 A. L. R. 1190).
It is well settled that each succeeding trustee can be compelled to convey the property (Boyd v. Brinckin, supra), and that upon his breach of that duty, as by his conveyance to a bona fide purchaser without notice, he becomes liable for the damage sustained (Mercier v. Hemme, 50 Cal. 606). Conversely, and accordingly, it is equally apparent that by conveying the property subject to the plaintiffs' rights, as the property was clearly conveyed to defendant by the vendor, and to Luinstra by defendant, there was no breach of either the vendor's contractual obligation (Anthis v. Sandlin, supra; Fargo v. Wade, 72 Or. 477, 142 Pac. 830, L. R. A. 1915A, 271), or the defendant's obligation imposed by law, For an essential element of the right of private property is the right to use or dispose of it in any lawful way which does not infringe the rights of others. A vendor may, of course, contract to hold the property himself during the period of sale contract; but in the absence of such agreement he may dispose of his interest in any way which will reserve the purchaser's contract rights; namely, by seeing to it that the intervening buyer takes with notice thereof, and therefore with the resulting obligation imposed by law. Thus the only statutory prohibition we have been able to find in Montana against the conveyance of real property previously contracted to be sold, is of a resale "with intent to defraud previous or subsequent purchasers." (Sec. 11412, Rev. Codes.) The contract in this case does not limit the vendor's right to assign the contract or to sell the property subject to it, but on the contrary recognizes that right by an express mention of assigns. Upon the record in this case, the conclusion is unavoidable that by its conveyance to Luinstra of only its right, title and interest, with a reservation of the rights of those in possession, and with the notice imputed by plaintiff's possession and by the prior recording of the Brokaw contract, the defendant did not contravene plaintiffs' rights, whatever they may have been; and this would be true even if defendant's obligation had been imposed by contract rather than by law.
There is no intention here to consider in his absence Lunistra's obligation toward plaintiffs; all that is intended is to point out that tbe plaintiffs have not shown that by the conveyance to Luinstra the defendant committed a breach of the obligation imposed upon it by la.w to recognize and preserve plaintiffs' rights, if any, under the contract. On the contrary, their own record indicates that if they had really desired to complete the purchase, rather than to lay a foundation for a damage action to recover the money paid to defendant's insolvent predecessor,, they could and would have done so.
Since plaintiffs' ease against defendant for assumption and broach of contract has failed, it is unnecessary to consider the contention that the defendant waived the notice of termination of plaintiffs' rights under the contract or otherwise renewed or extended those rights, or the contention that the plaintiffs, made an offer to pay the balance under circumstances equivalent to a tender. It is also unnecessary to consider whether as damages for a breach either of a contractual obligation or of one imposed by law, the plaintiffs are entitled to recover, in addition to the principal, also the interest and taxes paid, without a set-off for the proceeds or the value of its use where, as here, they or the purchaser had possession and use of the land during the eight year period of the contract. They rely upon section 8672, Revised Codes, which provides that the detriment caused by breach of a contract to convey real estate is ordinarily "deemed to be the price paid." In a proper case the statute would suggest a number of interesting questions. All the points mentioned in this paragraph may become material if plaintiffs should assert their claimed rights in a suit against Luinstra.
It is apparent from what has been said that the defendant's motion for a directed verdict should have been sustained. The judgment appealed from is therefore reversed and the trial court is directed to render judgment for defendant.
Associate Justices Morris and Anderson concur.