Kady v. Schutte
| Decision Date | 02 October 1942 |
| Docket Number | 6855. |
| Citation | 5 N.W.2d 721,72 N.D. 228 |
| Parties | KADY et al. v. SCHUTTE. |
| Court | North Dakota Supreme Court |
Rehearing Denied Oct. 24, 1942.
Syllabus by the Court.
1. Where rescission of a contract for the purchase of property is attempted on the ground of fraud in its inception and no fraud is shown, such contract may not be rescinded.
2. Where, as an inducement to the guarantee of payment of notes executed by a third party as evidence of the purchase of property from the payee, the payee and the guarantor entered into an agreement in writing that if the maker or the guarantor default on said notes the guarantor will be relieved from liability upon the notes upon restoring to the payee all of the property sold, and the guarantor, upon default, gives notice to the payee to that effect, and restores all of the property purchased, the guarantor is relieved from further liability upon the notes.
3. Where, under such agreement between the payee and the guarantor it is agreed that upon default in the payment of the notes and restoration of the property involved, the guarantor would be entitled to have all of the notes cancelled and returned to him, such agreement does not entitle the guarantor to a return of any payments made upon the notes or to any partial payment made on the purchase price of the property, but only to the return of the notes.
4. Where property that is sold is at the time of sale at certain locations and it is understood that the said property is to remain at said locations, and thereafter it is agreed that upon default of the notes representing the purchase price the guarantor of the notes may restore the property to the seller and then be relieved of further liability, and no other place is designated by the seller as a place for restoration, such property is restored to the seller when it is turned over to the seller at the places where it is located free from all claim to title or to possession on the part of the guarantor and purchaser.
Samuel Rubin and Fred E. Harris, both of Grand Forks and Scott Cameron, of Bismarck, for appellants.
F. T. Cuthbert, of Devils Lake, for respondent.
Thomas Kady is a sole trader, operating under the name of Thomas Kady & Son and herein is designated the plaintiff-the Schuttes being designated generally father and son, as the case may be.
The defendant guaranteed the payment of a series of 15 notes which his son J. L. Schutte, had executed and delivered to the plaintiff each for $400 with interest at 6% and due serially one month apart. The execution of the notes was the outgrowth of negotiations between the son and the plaintiff for the purchase and sale of 16 Wurlitzer phonographs at the agreed price of $6,600, $600 cash and the remainder in these monthly installments, and this suit is against the father alone on three causes of action set forth in the complaint.
The first note became due March 25, 1941. There was paid on this note the sum of $200 and the father gave to the plaintiff, at the time of payment, a check for $200 dated April 10, 1941. Plaintiff returned the note, but on April 9, payment of the check was stopped. This condition is the basis for the first cause of action.
The second cause of action is on the second note, due April 25, 1941, both father and son having defaulted.
The third cause of action is on the third note, due May 25, 1941, and unpaid.
The answer alleges: failure of consideration for the first note; fraud in the securing of the contract for the purchase and sale of these phonographs; fraud in securing the series of notes; the rescission of the contract of guarantee because of such fraud; and, as a counterclaim: demands that the amounts already paid be refunded; that the notes be returned to the defendant; or that he have judgment against the plaintiff for the amount thereof.
A reply was interposed to the counterclaim. The case was tried to the court. Judgment was entered for the defendant, the court finding: that the contract had been secured through fraud and was duly rescinded; that the defendant was entitled to the return of the amount paid; and to judgment against the plaintiff for the outstanding notes unless the same were returned to the defendant and cancelled. From the judgment entered the plaintiff appeals demanding a trial de novo.
The contract is evidenced by three instruments other than the notes. The first is an offer to buy the goods. On February 17, 1941, the father and son signed an order, Ex. A., directed to the plaintiff to:
The second instrument is Ex. 4, dated February 25, 1941. This is a contract of purchase and sale of 16 phonographs and equipment for $6,600 to be paid by $600 cash and installment payments of $400 per month, and contains a large number of provisions in fine print which have no bearing upon the case. At the time of the execution of this contract it was agreed the son was to be the purchaser and the father was to guarantee the payment of the notes. There is confusion in the instruments and in the testimony as to the exact dates of this exhibit and the notes, but the evidence shows this formal contract was executed subsequent to the order, but evidently dated to correspond with the date of payments set forth in Ex. A. Clearly Ex. 4 was the culmination of, and superseded the order, Ex. A.
This contract is signed by Thomas Kady, as vendor, and by J. L. Schutte, the son, as vendee. The father declined to sign it, and because of Ex. 4, the defendant's liability upon the order, Ex. A, ceased. His subsequent liability arose under another instrument.
Whatever be the true date of Ex. 4, it was taken as the date for the issue of the notes, and fifteen notes for $400, each dated February 25, 1941, and due serially a month apart, were executed by the son and "payment guaranteed" by the father. Under the terms of the contract, Ex. 4, the son paid to Kady the initial payment of $600, the amount being advanced to him by his father. It was not a payment by the father.
The third instrument, Ex. B, embodies the liability of the father. The record shows the plaintiff, though selling the goods to the son, desired to have the notes guaranteed by the father and there were negotiations between Thomas Kady and the father to this effect.
Defendant says he told Mr. Kady he would guarantee the notes "providing you will give me a side agreement that you will not hold me responsible for the balance due or credit any deficiency judgment against me in case of default payment"; and that after some hesitation Kady said: "All right, we will go right up to Mr. Cuthbert's office and have this agreement made up." This does not appear to be denied by the plaintiff. Accordingly plaintiff and the two Schuttes executed Ex. B wherein it is recited that the son had purchased the 16 phonographs from plaintiff and was to pay as hereinbefore stated and was to execute 15 notes "each to be signed by the said J. L. Schutte and the said Herman Schutte, which notes are in addition to the Six Hundred Dollars ($600) cash paid." The contract then provides:
"It is understood and agreed between the parties that in the event there is a default that upon restoring to the first party (the plaintiff) all of the above described property within ten days after demand therefore has been made by the first party, then in that event the said Herman Schutte shall have such notes cancelled and returned to him, and he assumes the obligation of returning all of the above described property; ***".
Thereupon the father subscribed the notes
On or about May 2, 1941, the Schuttes mailed to the plaintiff Ex. F., a written notice of rescission of the contract, Ex. 4, which notice refers to the provisions of the contract, Ex. B., and recites that the father:
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