Hege v. Suderman

• Decision Date: 09 November 1935
• Docket Number: 32119.
• Citation: 51 P.2d 23,142 Kan. 495
• Parties: HEGE v. SUDERMAN.
• Court: Kansas Supreme Court

51 P.2d 23

142 Kan. 495

HEGE v. SUDERMAN.

No. 32119.

Supreme Court of Kansas

November 9, 1935

Syllabus by the Court.

In action by mortgagee's assignee to rescind mortgage and note because of worthlessness of security, assignee could not claim that mortgagee fraudulently represented that mortgage was a first mortgage, where such question went out of case through failure of proof by concession of assignee's counsel and by trial court's findings of fact.

In action to rescind executed contract for purchase of mortgage and note, belated amendment to answer pleading statute of limitations held properly considered, where no motion to strike amendment was made and judgment rested chiefly upon amendment.

Rule of constructive notice of defect in mortgagor's title because of actual possession of mortgaged property by mortgagor's vendee held to pply to mortgagee's assignee as well as to mortgagee.

Where note and mortgage were sold by mortgagee and indorsed without recourse, there was no implied guaranty of sufficiency of guarantor's title to mortgaged property, since words "without recourse" constituted indorser mere assignor and subject to no liability except as implied guarantor that instruments were genuine, that he had good title to them, and that he was not aware of any illegality in them (Rev. St. 1923, 52--409, 52--606).

Mortgagee's assignee's action to rescind executed contract for purchase of note and mortgage which were indorsed by mortgagee without recourse, for defect in mortgagor's title of which defect mortgagee and assignee had constructive notice, which action was brought more than six years after sale of note and mortgage, held barred by limitation (Rev St. 1923, 60--306, subds. 2, 6).

In April, 1925, defendant loaned a sum of money and took a mortgage on real property, the record title to which stood in the borrower's name, but the latter had theretofore sold the property on contract and had let the purchaser into possession. Defendant had no actual notice of the contract of sale. In September, 1925, defendant sold and assigned to plaintiff "without recourse" the note and mortgage given to secure its payment. In 1928 the mortgage debt matured, and a three-years' extension agreement was effected between plaintiff and the mortgagor through the agency of defendant. The interest on the mortgage debt was paid until and including that due on October 18, 1930. Neither plaintiff nor defendant at that time had yet had actual notice of the rights of the mortgagor's vendee in possession. Thereafter default was made in payment of principal and interest; the defect in the mortgage security was discovered; and plaintiff brought this action against defendant for rescission and to recover the amount she had paid him for the note and mortgage nearly seven years before. Held:

1. The findings of fact, which were all favorable to defendant cannot be disturbed.

2. Defendant's belated amendment to his answer, pleading the statute of limitations, was properly considered.

3. The rule of constructive notice of a defect in the mortgagor's title applied as well to plaintiff as assignee of the mortgage as it did to the defendant assignor thereof.

4. Where the note and mortgage were sold, assigned, and indorsed "without recourse," there was no implied guaranty of the sufficiency of the debtor's title to the mortgaged property.

5. Plaintiff's action for rescission of the contract of purchase and sale of a note and mortgage on account of a defect in the mortgaged property, on which the plaintiff assignee had collected the interest for five years, which was begun six years, ten months, four days, after she purchased the note and its security, during all of which time she had constructive notice of the defect in the mortgagor's title to the property, was barred by the statute of limitations.

Appeal from District Court, Harvey County; John G. Somers, Judge.

Action by Christian Hege against H. E. Suderman. From a judgment plaintiff appeals.

HARVEY J., dissenting.

C. L. Foster, of Sedgwick, for appellant.

Ezra Branine, Alden Branine, Fred Ice, W. H. Von Der Heiden, Ashton E. Morgan, and Clifford A. Morgan, all of Newton, for appellee.

DAWSON Justice.

This was an action in rescission of an executed contract for the purchase of a note and mortgage predicated on a defect in the mortgagor's title which eventually rendered the security worthless.

The pertinent and explanatory facts were these:

Plaintiff was a woman of some means but without business experience. For many years she and her mother had been accustomed to consult defendant, H. E. Suderman, about their financial affairs, and occasionally they purchased a note and mortgage from him. He was president of the Midland National Bank at Newton and proprietor of a mortgage loan business sometimes called the Suderman Loan Company and again called the Newton Finance & Investment Company.

On April 18, 1925, Suderman made a loan of $1,500 to one Fugate, taking his note due in three years, and as security therefor Fugate executed a mortgage on some Harvey county real estate of which he was the record title holder but which he had theretofore sold on contract for $5,000 to one Gaedeke, $1,650 of which she had been paid in cash, and the balance, $3,350, was payable at the rate of $30 per month. This contract was not recorded but Gaedeke had been let into possession, and he was in possession at the time Fugate executed the note and mortgage to Suderman. The latter was unaware of Gaedeke's interest except under the rule of constructive notice arising from Gaedeke's possession.

On September 11, 1925, Suderman sold and assigned the Fugate note and mortgage to this plaintiff, indorsing both instruments "without recourse."

The interest on the Fugate note and mortgage was paid semiannually at the Midland National Bank; and when the note matured, in 1928, a three-year extension agreement was effected between plaintiff and Fugate through the agency of defendant. Meantime the entire balance due in monthly payments from Gaedeke to Fugate had been paid in full, and Gaedeke had received a deed to the property.

On October 18, 1930, Fugate paid the interest then due on the note and mortgage, but thereafter made default. Then plaintiff discovered the defective character of the mortgage security she had acquired from Suderman in 1925, and on July 15, 1932, this action against Suderman was begun.

Plaintiff's petition narrated the material facts, and contained an allegation of positive misrepresentation and actual fraud perpetrated by defendant Suderman touching the character of the mortgage security, but adding: "That if it should appear that defendant did not in fact know that said representations were false and that no actual fraud was intended on his part, said representations were in fact false and in which case there were mutual mistakes; that in any event defendant had knowledge of facts which should have put him on inquiry which if pursued, would have lead to full knowledge of all the facts; defendant knowing, at the date of the execution and delivery of said note and mortgage and at the time he sold said note and mortgage to plaintiff, that the mortgagors were not in possession of said real estate and that the party to whom they had sold said real estate was in possession thereof, knowledge of which facts should have put defendant on inquiry as to the ownership of said real estate, but plaintiff did not at any of said times have knowledge of any of the facts herein stated." (Italics ours.)

Plaintiff further alleged that the note and mortgage were of no value; that there was a consequent failure of consideration for the $1,500 she had paid to defendant; that she was entitled to rescission; and she prayed judgment for $1,500 and interest thereon from October 18, 1930.

Defendant's answer contained a general denial, an admission of the sale of the note and mortgage to plaintiff "without recourse," an allegation that plaintiff herself had constructive notice of the infirmity in the mortgage complained of in her petition from the time she acquired it in 1925. His answer also contained a specific denial of any confidential agency or fiduciary relationship existing between the parties. Later defendant filed an amendment to his answer in which he invoked the statute of limitations.

The evidence developed no material dispute of fact. Plaintiff did testify that defendant had expressly assured her that there was no infirmity in this Fugate mortgage and that she had relied thereon when she purchased it; but when her attention was called to the fact that the transaction had been consummated with defendant's son while defendant was in ill health in California, she modified her testimony thus: "I could have relied on what he [defendant] had said to me about other mortgages."

As the trial proceeded counsel for plaintiff advised the court:

"I am not relying on anything except rescission, failure of consideration and breach of that implied warranty. We ask that we be put in the same position that we occupied before this transaction.

"If there was no actual fraud, then there was a mutual mistake, so that the legal effect of invalidating the transaction would be exactly the same; there was no actual purchase and sale, because as I say, if there was no question of fraud on his part, which there probably wasn't, we don't know, but if there was not, there was a mutual mistake; if he was acting honestly and he thought he was selling her a good and valid note secured by a first mortgage on the real estate and she thought that is what she purchased, it was a mutual mistake and it turns out to be a nullity, which would invalidate it entirely. The transaction was a nullity and he got her

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