Court Opinion

ID: 9715689
Source: CourtListenerOpinion
Date Created: 2023-08-26 06:12:05.491152+00
Date Added: 2024-06-11T18:23:37.164731
License: Public Domain

Concurring Opinion
Sullivan, P.J.
While I concur with the result obtained in the primary opinion, I cannot subscribe to all of the reasoning or statements used to support that result, particularly to the extent that that opinion implies or holds that a mortgage assumption by a grantee renders the grantor-mortgagor a mere surety as to the creditor.
*105The parties have characterized the real issue here as follows: Did the relationship of Michael Cook, the grantor-mortgagor, to the mortgagee, First Federal Savings and Loan Association, become one of surety-creditor vis-a-vis principal obligorcreditor at the time Mclntire “assumed” the mortgage obligation? Appellant contends, inter alia, that the plaintiff Insurance Company, as successor to the mortgagee’s rights, has failed to pursue either the principal obligor (Mclntire), or to proceed in rem against the real estate which in defendant’s view was the principal fund out of which the debt should have been satisfied.1 Appellant claims that as a matter of law pursuance of one such alternative remedies is a prerequisite to maintenance of a suit against him as the original mortgagor.
To adopt appellant’s reasoning as to the categorization of his obligation to plaintiff-appellee would require modification of a well-founded principle of creditors’ rights. It is well established that when a mortgage is assumed and although as between grantor and grantee the relationship of principal-surety exists, Todd v. Oglebay (1902), 158 Ind. 595, 64 N. E. 32, the relationship of the grantor-original borrower does not change as to the lender in the absence of an express agreement on the part of the mortgagee to look first to the grantee. Geisen v. Karol (1928), 86 Ind. App. 653, 159 N. E. 469. Thus appellant Cook and his grantee Mclntire were principal obligors as to the mortgagee, First Federal. Supporting this principle is Todd v. Oglebay, supra, wherein the court stated at 158 Ind. 595, 599:
“It is well established in this State that a grantee who agrees and assumes to pay off as encumbrance on the land, as a part of the purchase price, thereby becomes to the lien *106creditor primarily liable for the debt; and, while the grantor will remain equally bound by his obligation, yet, as between him and his grantee, he becomes surety, and his grantee principal debtor. As between the parties to the deed, the encumbrance becomes the debt of the grantee.” (Emphasis supplied)
This rule was reaffirmed in Black v. Krauss (1949), 119 Ind. App. 529, 85 N. E. 2d 647, which states at 119 Ind. App. 537:
“The law is settled that a grantee of real estate, the deed of conveyance to whom contains a stipulation for his assumption of a debt secured by mortgage thereon, which debt his grantor is personally bound to pay, becomes, by the acceptance of such deed, personally bound to the mortgage creditor; and, as between such grantee and his grantor, the former becomes the principal debtor, while the latter becomes a surety. (Emphasis supplied) Ellis et al. v. Johnson, Trustee (1884), 96 Ind. 377; Figart v. Halderman (1881), 75 Ind. 564; Hill v. Minor (1881), 79 Ind. 48.”
Gross Income Tax Div. v. Crown Develop. Co., Inc. (1952), 231 Ind. 449, 109 N. E. 2d 426, is cited by the primary opinion for the proposition that the grantor as to all parties is but a surety. In Crown, the court said at 231 Ind. 449, 454, as quoted by the primary opinion here:
“[I]t may be stated that when the owner of real estate borrows money and secures the lender by a mortgage on the real estate, such transaction creates a mortgage interest in the real estate in the mortgagee, and thereby the owner reduces his own interest to the extent and by the amount of the mortgage interest so created. If the owner thereafter sells the real estate and in his deed of conveyance specifies that the grantee assumes and agrees to pay such mortgage indebtedness, the grantee then becomes the principal debtor and the grantor is relegated to the secondary relationship of a surety.” (Emphasis supplied)
It should be noted carefully that what the court in Crown said is literally true. However, the court there relied upon Black v. Krauss, supra, as its authority but in doing so has omitted the critical limiting language of the Krauss case:
*107“and as between such grantee and his grantor, the former becomes the principal debtor, while the latter becomes a surety.”
I believe that the unfortunate omission in Crown may have led my brothers here to incorrectly interpret Todd v. Oglebay, supra, and therefore to erroneously reason that the surety status of the mortgagor-grantor extends to his relationship with the mortgagee as well.
Although the Indiana decisions discussed heretofore are not perfectly clear with respect to these particular principles as applicable to the tripartite relationship existing here, the general rules are clearly ascertainable from Thompson on Real Property (1958) § 4781 at 524-525, which states:
“The assumption [by a grantee] does not release the mortgagor unless the mortgagee so agrees. It may be proved against the mortgagor or his assuming grantee, or against both jointly. When the mortgage has been thus assumed by a purchaser, he may be made a party to a proceeding to foreclose, and a personal judgment had against him; or he may be sued on his personal liability without any proceeding to foreclose.
“A grantee who assumes a mortgage becomes as to the mortgagor the principal debtor, and the mortgagor a surety; but the mortgagee, unless he has assented to such an arrangement, may treat both as principal debtors, and may have a personal decree against both.” (Footnotes omitted)
COOK WAS RELEASED BY AMERICAN STATES’ DISCHARGE OF McINTIRE
In Lutz v. Frick Co. (1962) 242 Ind. 599, 181 N. E. 2d 14, cited by the primary opinion herein, the highest court of this state held that release of a principal obligor by the creditor discharges the surety. As stated therein:
“. . . any binding change in the principal’s contract to which the guarantor or surety does not consent will discharge the latter from liability.” 242 Ind. 599, 602.
Although the factual situation in Lutz is distinguishable from the instant case, the distinction is without legal effect. *108The holding in Lutz has since been codified under the Uniform Commercial Code adopted in this state as IC 1971, 26-1-3-606, being Ind. Ann. Stat. § 19-3-606 (Burns 1964), which provides, inter alia:
“Impairment of recourse or of collateral.— (1) The holder discharges any party to the instrument to the extent that without such party’s consent the holder
“(a) without express reservation of rights releases or agrees not to sue any person against whom the party has to the knowledge of the holder a right of recourse or agrees to suspend the right to enforce against such person the instrument or collateral or otherwise discharges such person except that failure or delay in effecting any required presentment, protest or notice of dishonor with respect to any such person does not discharge any party as to whom presentment, protest or notice of dishonor is effective or unnecessary; or
“(b) unjustifiably impairs any collateral for the instrument given by or on behalf of the party or any person against whom he has a right of recourse.” (Emphasis supplied)
Although the Uniform Commercial Code was not in effect at the time the conveyance from Mclntire to American States’ trustee took place, the subsequent enactment into positive law of the Lutz principle renders the latter pronouncement clearly persuasive.
The Indiana comments accompanying the annotated text of the Uniform Commercial Code provision state that a surety may be discharged when there is a binding agreement between a creditor and a principal without reservation of rights that, among other things, either the creditor will not sue the principal or the creditor agrees to discharge the principal in some other way. It should be made clear that the principal-surety relationship referred to here is that which runs from Cook to Mclntire, not from Cook to American States. As stated, regarding the latter relationship, no suretyship exists. In terms of American States’ relationship with Mclntire, we *109may not infer the existence of a so-called “binding” agreement. Such inference would be necessary in order to fit the facts here within the requirements of the statutory language above because the dismissal of American States’ foreclosure action against Mclntire does not in itself constitute such a binding release or discharge or agreement not to sue.
The question remains, therefore, whether Mclntire’s quitclaim deed to the trustee for American States constitutes a discharge under the “or otherwise” provision stated above. If so, Cook would similarly be relieved of his liability as principal obligor to American States.
It is my view of the law that Mclntire’s quitclaim deed to Mark Gray, Trustee for American States, for $1.00 and “other valuable consideration,” which caused American States to dismiss the pending lawsuit against Mclntire, discharged Mclntire’s liability to American States by operation of law. In support of this, it is well settled that intention of the parties, absent an express agreement, is evidenced by their actions, the surrounding circumstances, and implications. Indianapolis Real Estate Board v. Wilson (1933) 98 Ind. App. 72, 187 N. E. 400. Therefore, the dismissal of the lawsuit against Mclntire coupled with the rendering of the quitclaim deed for consideration can be construed prima facie as one act. Manifestly, a binding agreement resulted which discharged Mclntire from further liability. This, in turn, was sufficient to discharge Cook. IC 1971, 26-1-3-606, supra.
NO MERGER TOOK PLACE BY THE ACCEPTANCE OF THE DEED FROM McINTIRE
It is unnecessary to the result herein reached to determine whether the legal and equitable titles to the land in question merged upon transfer to American States’ trustee. However, because the primary opinion purports to overrule longstanding Indiana law on this point, I respectfully submit that my colleagues err in attempting to do so. Appellee correctly points *110to Chase et al. v. Van Meter (1894) 140 Ind. 321, 333, 39 N. E. 455, as enunciating the law of this state:
“The true test of merger is the intention of the party, either expressed or implied. If the intention has not been expressed it will be sought for and ascertained in all the circumstances of the transaction. If it appears from all the circumstances to be for the benefit of the party acquiring both interests, that merger shall not take place, but that the equitable or lesser estate shall be kept alive, then his intention that such a result will follow will be presumed and equity will carry it into execution by preventing a merger. If, from all the circumstances, a merger would be disadvantageous to the party, then his intention that it should not result will be presumed.” (Emphasis supplied)
As clearly stated in Chase, if a merger would be disadvantageous to the party acquiring both interests, then no merger will take place.
It is not the province of this court to overrule the settled law articulated in Chase, supra. For this reason, I disagree with my colleagues’ attempt to overrule this authority, no matter how well intentioned and “equitable” such action may appear. Moreover, as indicated earlier, this point is not essential to the result reached in the primary opinion. To hold that Cook was discharged by operation of law, we need only consider the legal effect of the quitclaim from Mclntire to American States’ trustee, Gray, coupled with American States’ dismissal of the lawsuit against Mclntire. This is sufficient under the law of the State of Indiana to support the conclusion that Cook is no longer liable to American States, and is the sole basis of my concurrence.
Buchanan, J., concurs.
Note. — Reported in 275 N. E. 2d 832.

. The law in Indiana does not state, as appellant contends, that the land is always the primary fund for satisfaction of the mortgage debt. The remedy of the mortgagee is confined to the land only “[w]hen there is no express agreement in the mortgage, nor any separate instrument given for the payment of the sum secured thereby.” IC 1971, 34-1-53-2, being Ind. Ann. Stat. § 3-1813 (Burns 1968); Cross v. Burns (1861), 17 Ind. 441; McLochlin v. Miller (1966), 139 Ind. App. 443, 217 N. E. 2d 50.