malice, this destroys the privilege,17 and makes the communication actionable, providing damages can be shown as the proximate result.18 A severe criticism of a city may in fact be aimed at its officials. Malice may alone have actuated the communication, and yet may so far be obscured under the cloak of criticism that the plaintiff will have difficulty to prove it, either by the mere fact of the publication or by extrinsic proof.19 Even after the plaintiff has passed this obstacle by proving malice and establishing that the communication is not privileged, it must overcome a still greater obstacle in proving damages. A city is an entity differing in character from an ordinary individual or even a private corporation. To discern an injury to its reputation or its financial standing may require a little imagination. Yet, viewing a city in its two-fold aspect,20 with its purely governmental and its private corporate capacities, we see that a city may have, especially in the latter capacity, a reputation or financial standing which may be injured.21 Hence, it seems, if the city as plaintiff in a libel suit can show that the communication is not privileged, and that damages have resulted therefrom, it should be allowed to recover. It does not seem likely, if such recovery be allowed, that a dangerous precedent would be established, or that the right of free speech would be jeopardized. We do not entertain the opinion, expressed in the principal case, that such a rule would put upon the press the continual fear of vexatious litigation. There seems little chance that a case will arise in which a city will be able to secure judgment because of unfair comment. Walter C. Garey. Mortgages: Grantee assuming mortgage debt where grantor not personally liable.-In Bradbury v. Carter et al, 291 Fed. 363 (1923), the plaintiffs were holders of a note, secured by a mortgage, given to them by K, as purchase price for land which they conveyed to him. K conveyed the land to Wise, subject to the mortgage, but containing no agreement to pay it. Wise conveyed the land to the defendant, Bradbury, who assumed "as part of the purchase price the mortgage, which he agreed to pay". The mortgage note was not paid when due, and the plaintiff mortgagees foreclosed. There was a "Lafferty v. Houlihan, 121 Atl. (N. H.) 92 (1923); Plymouth Mut. Co-op. & Ind. Soc. v. Traders' etc., (1906) 1 K. B. 403; 3 L. R. A. (Ñ. S.) 696. The burden of proof is on the plaintiff to prove malice. 18Sutherland, Damages (4th ed.), sec. 1218. 19Gassett v. Gilbert, 6 Gray (Mass.) 94 (1856); Bacon v. Mich. C. Ry. Co., 66 Mich. 166 (1887); Wagner v. Scott, 164 Mo. 289 (1901). 20Higginson v. Treasurer etc. of Boston, 212 Mass. 583 (1912); Maxmilian v. Mayor, 62 N. Y. 160 (1875). 21 Audit Co. of New York v. City of Louisville, 185 Fed. 349, 352 (1911). "When it is exercising the rights of a proprietor in the management of its property [its powers are not so strictly limited as when acting in its governmental capacity, but] its council and officers resemble the directors and officers of a private corporation, and, in large degree, the powers of these agents and the responsiblity of the city for their acts are governed by the rules applicable to private corporations." Words in brackets are writer's. 1291 Fed. 363, 365 (1923). deficiency of $3,700 after the foreclosure sale. The plaintiffs are bringing the action at law to recover this amount from the defendant grantee. The court held "that Bradbury's agreement to pay the mortgage debt as a part of the consideration for the conveyance to him will bind him to make good his undertaking even though his grantor, Wise, did not become liable to pay the mortgage debt".? All of the states in the Union, with the exception of Massachusetts, allow the mortgagee to sue the grantee where the latter has assumed payment of the debt due on the mortgage, and the grantor was himself legally bound to pay the debt to the mortgagee. The majority of the states allow the mortgagee a direct action at law against the grantee on his promise to pay the mortgage debt. Our inquiry is, therefore, how does the mortgagee acquire the right to sue upon a promise made by the grantee to the grantor? There are two theories upon which the mortgagee is allowed to sue. First, that the contract between grantor and grantee, by which the latter promises to pay the grantor's debt due on the mortgage, is made for the benefit of the mortgagee. Second, that the grantee, in assuming payment of the mortgage debt, relieves his grantor of the primary liability which the latter owed the mortgagee. The grantee is now the primary debtor, and the grantor is merely a surety for the payment of the debt by the grantee to the mortgagee. In other words, the contract between grantor and grantee is one of indemnity. By the equitable doctrine of subrogation, the creditormortgagor may avail himself of this promise to his debtor-grantor. Since the grantee is now the principal debtor, his promise to the grantor to pay the debt is considered an additional security in the hands of a surety, of which the mortgagee may avail himself to 7 Supra, n. I. The Circuit Court of Appeals reversed the decision of the Dis trict Court on another point. The court bases its decision on Dean v. Walker, 107 Ill. 540, 548 (1883), which it cites as authority. On facts similar to the principal case, the Illinois court held: "that where one person makes a promise to another, based upon a valid consideration, for the benefit of a third person [mortgagee], such third person may maintain an action upon it." Two of the judges dissented. England, Ireland and Canada do not permit the mortgagee to sue. Samuel Williston, "Contracts for the Benefit of a Third Person," 15 Har. L. Rev. 767, 787. Cases cited, notes 4, 5, 6, 7. Supra, n. 3, 15 Har. L. Rev. 767, 808, where cases from twenty-eight states are cited. 'Dean v. Walker, supra, n. 2. Illinois and a number of other jurisdictions allow a recovery on this theory. Sheldon, C. J., and Dickey, J., dissenting, in Dean v. Walker, supra, n. 2, said (p. 551), "It seems to us that the true construction of the promise of Walker to pay off the mortgage is, that he undertook to indemnify Dean against the mortgage. Such is the teaching of the New York cases ***, and we think it is sound.' Robson v. O'Toole, 45 Cal. App. 63 (1920); George v. Andrews and Wife, 60 Md. 26 (1882); Norwood v. De Hart, 30 N. J. Eq. 412 (1879); Halsey v. Reed, 9 Paige (N. Y.) 445 (1842); King v. Whitely, 10 Paige (N. Y.) 465 (1843); Calvo v. Davies, 73 N. Y. 211 (1878); Murray v. Marshall, 94 N. Y. 611 (1884); Wager v. Link, 150 N. Y. 549 (1896); Thomas on Mortgages (3rd ed.), sec. 592, p. 371; 19 R. C. L. sec. 145, p. 375. "For a discussion of the development of the doctrine in N. Y., see 4 CORNELL LAW QUARTERLY 53-55, where some of the N. Y. cases are reviewed. satisfy the debt, if the amount realized from a sale of the mortgaged property is insufficient. New York and the majority of the states follow this theory. The essential difference between the two is this: Illinois gives the mortgagee a direct right to sue upon the promise of the grantee made for the mortgagee's benefit; New York gives the mortgagee an indirect right to sue upon a promise made for the direct benefit of the promisee, the grantor. It is he who is directly benefited, since the grantee relieves him of a primary obligation to the mortgagee, and assumes it upon himself. The right of the creditormortgagee to sue is "derivative". It logically follows that in Illinois, the mortgagee may proceed against the grantee on his obligation, even where the grantor was not liable to pay the mortgage debt. In New York, on the other hand, where the creditor derives his right to sue the grantee from the grantor's personal obligation to him, the mortgagee must fail in his suit where such obligation does not exist. Not only in states where a third party beneficiary of a contract may sue at law,10 but also in jurisdictions where he is given the right to sue by statute," the courts generally deny the grantee's liability to the mortgagee unless the grantor was also liable. Which rule is the better one on principle: the Illinois rule, adopted by the principal case, which allows a recovery against the grantee where the grantor was not liable; or the New York rule, supported by the weight of authority, which denies recovery in such a case? In Supra, n. 3, 15 Har. L. Rev. 767, 781. "The early New York cases bearing on the right of a creditor to sue one who promises the debtor to pay the debt recognized that the creditor's right was derivative and that it was by virtue of his claim against the debtor that he acquired a right to sue upon the promise to the debtor." See Dunning v. Leavitt, 85 N. Y. 30, 35 (1881). 'A majority of jurisdictions deny the liability of a grantee where the grantor was not liable. The case most cited is Vrooman v. Turner, 69 N. Y. 280 (1877). The facts are analogous to the principal case. The rule laid down by the court is (p. 283-4): "To give a third party who may derive a benefit from the performance of the promise, an action, there must be, first, an intent by the promisee to secure some benefit to the third party, and second, some privity between the two, the promisee and the party to be benefited, and some obligation or duty owing from the former to the latter ***." In the New York cases, where the second element is present, it is presumed that the first element is also present. Fry v. Ausman, 29 S. D. 30, 36 (1912). American Security & Trust Co. v. Ferrero, 45 App. D. C. 84 (1916); Biddle v. Pugh, 59 N. J. Eq. 480 (1900); Trotter v. Hughes, 12 N. Y. 74 (1854); H. H. Glassie, “The Assuming Vendee," 9 Va. L. Rev. 196, 200, 202; I Williston, sec. 386, p. 728, n. 71; 15 Har. L. Rev. 767, 791, n. 1; Thomas on Mortgages, sec. 605, p. 473; 19 R. C. L. p. 376, sec. 146; 22 L. R. A. (N. S.), 492. 10Lawrence v. Fox, 20 Ñ. Y. 268 (1859). "Case v. Egan, 207 Pac. (Cal.) 388 (1922). By statute, in California, a contract made expressly for the benefit of a third person may be enforced by him. On facts similar to the principal case the plaintiff mortgagee brought the action against the defendant grantee, relying for recovery on the above statute. The court held that the contract between the grantor and the grantee, by which the latter assumed payment of the mortgage debt, was not intended for the benefit of the mortgagee, so as to bring him within the meaning of the statute. The court cites as authority Vrooman v. Turner, supra, n. 9, where the N. Y. court refused to consider the mortgagee as a direct beneficary of the grantor-grantee contract. Recovery was denied for similar reasons in Fry v. Ausman, supra, n. 9, where the statute is identical with the California statute. See also 9 Va. L. Rev. 196, 202; 19 R. C. L. p. 376, Sec. 146. For a note on Case v. Egan, see 11 Cal. L. Rev. 139. the construction of all contracts, the intention of the parties is the primary factor. Especially should the intention of the parties prevail, where a person not a party to the contract claims a benefit under it. Clearly, if such person is in the mind of neither of the contracting parties, it would seem unreasonable to allow him a claim of any benefits under the contract. "When a grantor of premises subject to a mortgage requires the grantee to assume and agree to pay the mortgagee, is it the welfare of the mortgagee that the grantor is considering, or is it his own?" It makes no difference to the grantor whether or not the grantee pays the debt to the mortgagee, if by such payment he is not relieved of his primary obligation. The obvious conclusion, therefore, is that both grantor and grantee, by the contract of assumption, seek to benefit the grantor.13 Where the promisee is not himself liable to pay the debt to the mortgagee, he has no interest in the performance of the promise, since he has already conveyed the premises. Two possible reasons, or hypotheses, may be advanced for the insertion of an assumption clause in such a case: first, that the grantor intends to make a gift to the mortgagee of a sum subtracted from the total consideration for the conveyance, and left in the hands of the grantee; secondly, that the clause is inserted by the grantor in the exercise of an undue caution, lest, at some future time, the mortgagee have recourse to him for the payment of the debt.14 In the ordinary case, involving such business transactions, the grantor wishes to get as much as he can for his property from the grantee. The purchaser wishes to secure the property as cheaply as he can with as few incumbrances as possible. 15 For each incumbrance, he will ask a reduction in price. If, in addition to conveying property subject to a mortgage, the grantor imposes another obligation on the buyer-payment of the mortgage debt-he must expect to obtain less for it. According to the first hypothesis, the difference between what the property would sell for if there were two incumbrances on it, a mortgage and a debt, and what it would sell for with merely a mortgage on it, is the gift of the grantor to the mortgagee. Such is the effect of a conveyance subjecting a grantee to two burdens, when the grantor was only subject to one. The mortgagee, as a direct beneficiary of that gift, should, therefore, be required to prove that such was the intent of the grantor.16 He may do this by having the grantor testify that he sold the property for a smaller sum than he could have received for it, by exacting an additional promise of payment from the grantee. If he could prove these facts, very few states would deny him a recovery.17 The difficulty with the first hypothesis lies in the fact that "I Williston, sec. 380, pp. 711, 712. Identical language is used by Professor Williston in 15 Har. L. Rev. 767, 786, supra, n. 3. "Sheldon, C. J., and Dickey, J., dissenting, in Dean v. Walker, supra, n. 2, at p. 551; Young Men's Ass'n. v. Croft, 34 Or. 106 (1898), at p. 113; 9 Va. L. Rev. 196, 199, supra, n. 9. "I Williston, sec. 386, p. 728; 15 Har. L .Rev. 767, 791, supra, n. 3. "Morris v. Mix, 4 Kan. App. 654 (1896), especially pp. 664, 665. McKay v. Ward, 20 Utah 149 (1899), at p. 187, Bartch, C. J., dissenting. 17Under such circumstances, N. Y. would probably allow a recovery. Seaver v. Ransom, 224 N. Y. 233 (1918). He could recover in California by virtue of the statute, supra, n. II. in an ordinary conveyance of property, the grantor does not possess the generosity which the mortgagee ascribes to him. The grantor very seldom wishes to make a gift to the mortgagee of the amount which he must lose by virtue of making the grantee assume payment of the mortgage debt. We are constrainted, therefore, to follow the second hypothesis, that the grantor is exercising undue caution in the exaction of the promise. He does not, in fact, owe a debt. A grantor does not, ordinarily, sell the property for less to the buyer because of the promise to pay the mortgage debt, for he knows that he owes no debt. The grantee, who makes the promise to pay, if he does not know of the non-liability of the grantor, intends to indemnify the grantor. He certainly does not intend to pay the debt to the mortgagee, if his grantor had no liability against which to be indemnified. If his intentions are otherwise, viz., to pay the mortgagee regardless of the grantor's liability, he will demand a reduction. in price. To this the grantor will not consent, as we have already seen, unless he desires to make a donation to the mortgagee. What we have left, therefore, is a promise to indemnify the grantor against a liability which does not exist. There is no contract. The assumption clause is a mere nudum pactum.1 18 In conclusion, it might be said that the great multitude of business transactions, of which the principal case is an example, makes it imperative for the courts to construe a grantor-grantee contract according to the strict intention of the parties. Harmony in these business transactions, and the assumption of true contractual relations by the parties, is thwarted by an indulgence in fictions. To say to a grantor that he intended to make a gift, and to the grantee that he assumed payment of it, when such intention was wholly foreign to the minds of the parties, is to make a contract for them. It is to be hoped, therefore, that the majority rule, denying the grantee's liability where the grantor was not himself liable to pay the mortgage debt, will be universally adopted. Only when the mortgagee can show that he was the person intended to be benefited, should a recovery be allowed against the grantee. H. Wolkinson. Municipal Corporations: Taxation: Tax collected in one municipality used in another.-In Miller v. Korns, 140 N. E. (Ohio) 773 (1923), it appeared that the state legislature had provided for a tax of .15 mills upon all property ordinarily taxed by the state, to create a fund called the "educational equalization fund," which was administered by a state officer and divided among the school districts of the state. The state also taxed all property taxed by the state at the rate of 2.65 mills, this tax to be collected by the county auditors as were other state taxes. The money raised by this latter tax was to be kept in the counties raising it to be distributed by each county auditor among the school districts of his county according to the 18Huyler's Executors v. Atwood, 26 N. J. Eq. 504, 505 (1875), affirmed in 28 N. J. Eq. 275 (1877); Mount v. Van Ness, 33 N. J. Eq. 262, 265 (1880); Brewer v. Maurer, 38 Oh. St. 543, 550 (1883). |