Federal Land Bank v. Houck

• Decision Date: 27 May 1942
• Docket Number: 8477
• Citation: 68 S.D. 449,4 N.W.2d 213
• Parties: THE FEDERAL LAND BANK OF OMAHA, Appellant, v. J. R. HOUCK, Respondent
• Court: South Dakota Supreme Court

68 SD 449, 4 NW2d 213 (1942)

THE FEDERAL LAND BANK OF OMAHA,

Appellant,

v. J. R. HOUCK,

Respondent

South Dakota Supreme Court

Appeal from Circuit Court, Potter Co., SD

Hon. J. H. Bottum, Judge.

#8477--Affirmed.

Otto A. Gruhn, of Omaha, Neb.,

W. J. Jacobs, Faulkton, SD

Attorney for Appellant.

K. J. Morgan, Gettysburg, SD

Attorney for Respondent.

Opinion filed May 27, 1942

SMITH, J.

This action was instituted by the Federal Land Bank of Omaha to recover a deficiency judgment against defendant Houck upon a mortgage indebtedness of one Scott. The complaint alleged that defendant had assumed and agreed to pay the Scott indebtedness. The answer pleads fraud. The case was tried to a jury and resulted in a verdict for defendant. The appeal is from the judgment. The Federal Land Bank, hereinafter referred to as the Bank, moved for a directed verdict at the close of the testimony and predicates error upon the ruling of the trial court upon that motion.

The right to a review of the evidence under an appeal from a judgment predicated upon the ruling of the trial court upon a motion for directed verdict has long been recognized by our adjudications, Lyle v. Barnes, 30 SD 647, 139 NW 338; Warwick v. Bliss, 45 SD 388, 187 NW 715; Wolff v. Stenger, 59 SD 231, 239 NW 181, and is preserved by SDC 33.0710. See Chambers v. Wilson et al., 67 SD 495, 294 NW 180. The review in such case is limited by the scope of the motion. Grant v. Powers Dry Goods Co., 23 SD 195, 121 NW 95; Dilger v. Griffith, 26 SD 411, 128 NW 487; Woods et al. v. Stacy, 28 SD 214, 132 NW 1007. True principles of law, rather than the law of the case as subsequently established by instructions to the jury, govern the trial court in ruling on the motion for a directed verdict and this court in reviewing such a ruling. Schmidt v. Carpenter, 27 SD 412, 131 NW 723, Ann. Cas. 1913D, 296; 64 C. J. 442. A verdict by direction is only justified when the evidece conclusively establishes the right of the moving party. Commercial & Savings Bank v. Duitsman, 48 SD 534, 205 NW 379.

The first phase of the argument of the Bank deals with the issue of fraud. The facts involved are as follows: In 1924 Perry M. Scott and his wife executed and delivered to the Bank their promissory note and a real estate mortgage as security for the payment thereof. This farm loan was negotiated through the Gettysburg National Farm Loan Association of Gettysburg, South Dakota, and the note was endorsed by that Association. In connection with the transaction Scott became the owner of twenty-eight shares of the capital stock in that Association. On December 6, 1930, the Scotts conveyed the real property so mortgaged to the defendant Houck “subject to Federal Loans and other incumbrances of record.” On May 23, 1931, Houck wrote the Bank “I have taken over the Perry Scott farm and from now on address all correspondence in reference to your loan to me.” On May 26, 1931, the Bank wrote Houck and in substance told him that if he had taken over the Scott land to please go to the Secretary of the Gettysburg Farm Loan ssociation and sign a Change of Title Notice, and that thereafter all correspondence connected with the loan would be mailed to him. On June 4, 1931, the Bank wrote the Secretary of the Loan Association as follows:

“‘This land has been taken over by Mr. Houck.

“This is to request that you communicate with these parties, securing information necessary to complete the association’s records in connection with this transfer, and at the same time have a Notice of Change of Title duly executed and forwarded to this Bank for its records.

“Your prompt compliance with this request will be sincerely appreciated.”

On May 10, 1932, Mr. Houck called at the Association’s office, and the Secretary there tendered to him a document for his signature. Houck’s testimony as to the conversation there had was not disputed by the Secretary who was a witness for the Bank at the trial. Houck testified, “I told him that I didn’t have any glasses and I could not see to read it and asked him if there was anything in there that would bind me, and he said it was just a matter of record for the Federal Land Bank, showing that the land changed hands, for their records.” Thereupon Houck signed an instrument entitled “Notice of Change of Title” which contained the following language: “In consideration of The Federal Land Bank of Omaha, of Omaha, Nebraska, permitting the undersigned to assume said mortgage and the stock interests of the vendor as provided by paragraph 6 of Section 12 of the Federal Farm Loan Act, 12 USCA § 771, subd. 6, and in further consideration of the Gettysburg National Farm Loan Association admitting the undersigned to membership in such Association, the undersigned purchaser hereby assumes all the conditions of and agrees to pay the unpaid balance of the mortgage indebtedness to The Federal Land Bank of Omaha upon said premises, ....”

The evidence reveals that Houck was a man of broad experience in real estate and mortgage transactions, that the Secretary of the local Association was a practicing lawyer, that such lawyer had acted as attorney for him in many matters and had prepared the contract pursuant to which the Scott land was conveyed to Houck, containing a provision that the conveyance was to be “subject to” the mortgage of the Federal Land Bank.

The next day after this instrument was signed by Mr. Houck, at the solicitation of the Secretary Mr. Scott executed that section of the agreement which contained an assignment to Mr. Houck of his twentyeight shares of capital stock in the Association. The instrument so executed was left with the Secretary of the Association and was thereafter mailed to the Bank. On Nov. 25, 1932, the Bank wrote the Secretary acknowledging receipt of the Notice of Change of Title and said “for which we thank you.” Thereafter the Bank noted Houck on its records as a borrower and notified him of maturities. Not until April, 1937, was Houck elected to membership in the Association, nor did he know that he had signed an offer to assume the mortgage indebtedness until October or November, 1940.

In urging that the Circuit Court erred in refusing to direct a verdict on the issue of fraud, the Bank first states that the evidence establishes that Houck was neither prevented from reading the instrument entitled “Notice of Change of Title” or from having it read to him, and that he was negligent as a matter of law in failing to ascertain its contents, and further states that one of Houck’s capacity, understanding and experience may not avail himself of the defense of fraud grounded on a misrepresentation of the contents of an instrument which he negligently fails to read. This contention rests largely on the language used by this Court in Farlow v. Chambers, 21 SD 128, 110 NW 94, and finds support in the holdings of other jurisdictions, 34 Mich. Law Rev. 705; Bixler v. Wright, 116 Me. 133, 100 A. 467, LRA 1917F, 637. However, in Herreid et ux. v. Chicago, M. & St. P. Railway Co., 38 SD 68, 159 NW 1064, the question under consideration by this Court was whether a complaint stated a good cause of action which alleged that plaintiff signed a deed without reading it, based upon the representation of the aget of the Railway Company that it “was merely a Conveyance of the said right of way and would not bar or preclude plaintiffs from recovering such damages as they might suffer by any injury to or destruction of the spring”, whereas the instrument in fact contained a release of all liability for damages of the described character. In sustaining the complaint this Court receded from the implications of the opinion in Farlow v. Chambers, supra, and without mention of Winter et al. v. Johnson, 27 SD 512, 131 NW 1020, permitted plaintiff to assert defendant’s fraud as a defense to the purported release notwithstanding the fact that the allegations of the complaint revealed that the plaintiff had negligently failed to read the instrument he signed.

The courts which bind a party to a contract which he has negligently failed to read, even though his signature thereto has been procured by deliberate misrepresentation as to its contents, justify their position by holding that the judicial machinery has been developed for the use of those persons who use due diligence to look out for their rights outside of court. 34 Mich. Law Rev. at 708. As between the alternatives of lending use of the courts as a shield to the careless victim or as an instrument to aid the perpetrator of fraud in gathering the fruits of his perfidy, we have little difficulty in making a choice. Where the issue is between the original parties we think neither reason nor policy justifies the reception of a showing of negligence on the part of him who is overreached as a countervailent or neutralizer of fraud. We therefore adhere to the views expressed in Herreid et ux. v. Chicago, M. & St. P. Railway Co., supra.

In presenting this branch of the case counsel for the Bank asserted at bar that the evidence does not support an inference that the Secretary of the Association acted as the agent of the Bank in this transaction. It has been held that the Federal Farm Loan Act, 12 USCA § 641 et seq., Chapter 7, Subchapter 1, does not create the relation of principal and agent between a Federal Land Bank on one hand and a National Farm Loan Association or the Secretary of that Association, on the other. Bjorkstam et ux. v. Federal Land Bank of Spokane et al., 138 Wash. 456, 244 P. 981; Federal Land Bank of Wichita, Kansas v. Denson et ux., 172 Okl. 225, 44 P.2d 891; Gantt v. Gunter et al., 225 Ala. 679, 145 So. 146; Hooper v. Federal Land Bank of Columbia et al., 178 Ga. 571, 173 SE 415. It does not follow, however, that such a Bank is without power to use the Secretary of such an Association as its agent in a particular transaction. We deem the evidence as herein set forth sufficient to support an...