## Facts

- On May 4, 1928, Frances V. Brown and Thomas W. Brown gave Morstain a $400 promissory note secured by a mortgage on the Browns’ real property.
- On June 12, 1928, the Browns conveyed the mortgaged property to Kircher by deed. Kircher took the property subject to the mortgage and also assumed and agreed to pay the note and mortgage debt.
- After taking title, Kircher made interest payments directly to Morstain.
- On November 1, 1928, Kircher reconveyed the property back to the Browns by deed stating the conveyance was subject to the mortgage (and not containing a new assumption by the Browns in favor of Kircher).
- The mortgage debt later went unpaid, and Morstain sued Kircher to recover the amounts due on the note.
- The municipal court of Minneapolis entered judgment for Morstain for $432.07, and Kircher appealed.

## Issues

1. Whether a grantee who assumed and agreed to pay a mortgage remains personally liable to the mortgagee after the grantee reconveys the property back to the mortgagors “subject to” the mortgage, where the mortgagee did not assent and had not taken action that would make the mortgagee’s third-party beneficiary rights fixed.

## Decision

- The Minnesota Supreme Court held that Kircher was not personally liable to Morstain after the reconveyance.
- Although a mortgagee may sue an assuming grantee as a third-party beneficiary of the assumption agreement, the mortgagee’s right is tied to (and cannot exceed) the rights held by the promisee in that contract.
- Kircher’s reconveyance to the Browns, subject to the mortgage, operated as a rescission or modification of the assumption arrangement between Kircher and the Browns, restoring the Browns to responsibility for the debt as between themselves and Kircher.
- Because Morstain’s beneficiary right had not become fixed in a way that prevented the original contracting parties from changing their agreement, Morstain could not enforce the earlier assumption against Kircher.
- The Supreme Court reversed the judgment for Morstain and relieved Kircher of personal liability on the note.

## Legal Principles

- A grantee who “assumes and agrees to pay” an existing mortgage may be sued by the mortgagee as a third-party beneficiary of that promise.
- A third-party beneficiary’s enforcement right is generally subject to the power of the original contracting parties to modify or rescind their contract before the beneficiary’s right becomes fixed by acceptance, reliance, or a similar act recognized by law.
- In the mortgage-assumption setting, when the assuming grantee reconveys the property to the original mortgagor subject to the same mortgage, that reconveyance can rescind the assumption agreement as between grantor and grantee and discharge the grantee’s personal liability to the mortgagee, if the mortgagee’s beneficiary right has not become fixed.
- Interest payments made by the assuming grantee to the mortgagee do not necessarily prevent later rescission of the assumption agreement between grantor and grantee.

## Conclusion

Morstain v. Kircher holds that, while a mortgagee may ordinarily enforce an assumption clause against an assuming grantee, the grantee’s later reconveyance of the mortgaged property back to the mortgagors “subject to” the mortgage can discharge the grantee’s personal liability where the mortgagee’s third-party beneficiary right had not become fixed so as to bar the original parties from modifying or ending their agreement.


Morstain v. Kircher, 250 N.W. 727 (1933)