This section is from the book "The Law Of Real Property and Other Interests In Land", by Herbert Thorn Dike Tiffany. Also available from Amazon: A Treatise on the Modern Law of Real Property and Other Interests in Land .
A question of difficulty arises when the transferor of the mortgaged property is not himself personally liable for the mortgage debt, as, for instance, when one acquires the property without agreeing to pay the debt and thereafter transfers it to one who does agree to pay it. Accepting the view that the transferee's liability to the mortgage creditor by reason of his agree80. Professor Samuel Williston, in an article on "Contracts for the Benefit of a Third Person" in 15 Harv. Law Rev. at p. 767, embodied in his edition of Pollock on Contracts at p. 237 et seq.
81. Tweddell v. Tweddell, 2 Bro. ch. 152; In re Errington (1894) 1 Q. B. 11; Bonner v. Tottenham Society, (1899) 1 Q. B. 161; Fontenac Loan Co. v. Hysop, 21 Ont. 577; Mellen v. Whipple, 1
Gray (Mass.) 317; Coffin v. Adams, 131 Mass. 133; Creesy v. Willis, 159 Mass. 249, 34 N. E. 365; Goodenough v. Labrie, 206 Mass. 599, 92 N. E. 807. The Massachusetts dicta and decisions are however merely that there can be no recovery at law, nothing being said as to the possibility of recovery in equity. See 15 Harv. Law Rev. 787, note 7.
Ment of assumption is in the ordinary case to be based on the doctrine of subrogation, or the analogous theory of the application of the debtor's property to the payment of his debt, there appears to be no room for the application of this doctrine when the transferor, with whom the agreement is made, is not himself liable for the debt. It has been so decided in several cases.82 On the other hand, when the liability of the transferee on his agreement is regarded as based on the theory that the mere beneficiary of a contract may sue thereon, the fact that the person with whom the agreement is made is not himself liable for the debt would seem absolutely immaterial, and there are a number of decisions to that effect.83 But in at least three states, although this theory of the transferee's liability in the ordinary case is adopted, it is nevertheless regarded as a prerequisite of such liability that the transferor himself be liable. In two of these states this view has been based on the theory that since the transferor could not have any object in requiring the transferee to agree to pay a debt for which the transferor himself is not liable, the agreement should be construed merely as one to take the property subject to the mortgage.84 In
82. Ward v. De Oca, 120 Cal. 102, 52 Pac. 130; American Security & Trust Co. v. Ferrers, 45 App, Cas. (D. C.) 84; Morris v. Mix, 4 Kan. App. 654, 46 Pac. 58; Colorado Sav. Bank v. Bales, 101 Kao. 100, 165 Pac. 843; Norwood v. De-Hart, 30 N. J. Eq. 412; Trotter v. Hughes, 12 N. Y. 74.
83. Cobb v. Fishel, 15 Colo. App. 384, 62 Pac. 625; Dean v. Walker, 107 111. 540, 47 Am. Rep. 467; Hart V. Emery, 184 111. 560, 56 N. E. 865; Marble Sav. Bank v. Mesarvey, 101 Iowa, 285, 70 N. W. 198; Crone v. Stinde, 156 Mo. 262, 55 S. W. 863, 56 S. W. 907; Llewellyn v. Butler, 186 Mo. App. 525, 172 S. W. 413; Hare v. Murphy, 45 Neb. 809, 29 L. R. A. 851, 64 N. W. 211; McDonald v. Finseth, 32 N. D. 400, L. R. A. 1916D, 149, 155 N. W. 863; Brewer v. Maurer, 38 Ohio St. 543; Merriman v. Moore, 90 Pa. 78; South Carolina Ins. Co. v. Kohn, 108 S. C. 475, 95 S. E. 65; McKay v. Ward, 20 Utah, 149, 46 L. R. A. 623, 57 Pac. 1024; Cork-rell v. Poe, 100 Wash. 625, 171 Pac. 522; Enos v. Sanger, 96 Wis.. 150, 37 L. R. A. 862, 65 Am. St. Rep. 38, 70 N. W. 1069.
84. Brown v. Stillman, 43 Minn 126, 45 N. W. 2; Nelson v. Rogers, another state it is said that to enable a third person to sue upon a contract, there must be an intent on the part of the promisee to benefit such person, and that in the case of an agreement by the transferee to pay the mortgage debt, no such intent is apparent unless the transferor is himself liable.85 But even when the transferor is himself liable, there is ordinarily no intent on his part to benefit the mortgage creditor, and it would rather appear that, in asserting the view that the creditor has no right of action upon the transferee's agreement if the transferor is not himself liable, the court was to a great extent controlled by earlier decisions to that effect, rendered at a time when a creditor's right to sue on a promise made to the debtor to pay the debt was regarded as exclusively dependent on the theory of subrogation.86
Agreement by junior mortgagee. The case of an agreement by one to whom a mortgage is made, to pay a prior mortgage on the property, stands on a different basis from such an agreement by one to whom an absolute transfer is made. In the latter case the transferee in effect promises to pay the money which he owes for the land, to the extent of the amount of the mortgage debt, to a third person, the mortgage creditor. In the case of an agreement by a subsequent mortgagee, he owes the mortgagor no debt which he can promise to pay to the prior mortgage creditor, and his agreement is therefore no more than an agreement to advance money to pay the prior mortgage debt. And an agreement with a debtor to advance the money to pay the claim against him is not one for the breach of which the debtor is ordinarily entitled to recover substantial damages, and a fortiori the creditor is not so entitled.86a As has been judicially remarked, if such a contract could be enforced by the creditor who would be incidentally benefitted by its performance, every agreement by one person with another to pay his debts could be enforced by the creditors.87 It has accordingly been decided that the mortgage creditor cannot recover on such an agreement of assumption by a subsequent mortgagee,88 and this whether the subsequent mortgage is such in form or is in the form of an absolute conveyance.89 The same rule apparently holds good although the subsequent mortgage is in terms for an amount which includes not only the sum loaned by the mortgagee at the time of taking the mortgage, but also the amount of the prior mortgage which he assumes.90 Since a mortgage secures only the sum actually due, whatever amount it may purport to secure,91 the mortgage cannot, even in such case, be regarded as having in his hands money belonging to the mortgagor which he is under an obligation to pay over to the prior mortgagee. The case might be different, it seems, if at the time of the making of the second mortgage the mortgagee actually paid over the full sum of the amounts purporting to be secured by the two mortgages and the mortgagor returned to the second mortgagee the amount of the first mortgage for the express purpose of paying it.92