Nathan v. McKernan

• Court: Nebraska Supreme Court
• Writing for the Court: Heard before SIMMONS; CHAPPELL; SIMMONS
• Citation: Nathan v. McKernan, 101 N.W.2d 756, 170 Neb. 1 (Neb. 1960)
• Decision Date: 11 March 1960
• Docket Number: No. 34558,34558
• Parties: Evelyn NATHAN, Appellant, v. Bernard M. McKERNAN et al., Appellees.

Page 756

101 N.W.2d 756

170 Neb. 1

Evelyn NATHAN, Appellant, v. Bernard M. McKERNAN et al., Appellees.

No. 34558.

Supreme Court of Nebraska.

March 11, 1960.

Syllabus by the Court

1. The defense on the ground of fraud may be shown by parol, not to contradict or vary but to destroy the legal and binding effect of a written instrument.

2. The defense of recoupment or reduction of plaintiff's claim must arise out of the same transaction as plaintiff's claim, and survives as long as plaintiff's cause of action exists, even if affirmative legal action upon the subject of recoupment is barred by the statute of limitations.

3. As a general rule there is an entire failure of consideration where the property is entirely worthless, but there is not entire failure of consideration if the property has any substantial value, although less than the consideration paid, as where, by reason of unsoundness or imperfection, it is merely diminished in value.

4. Where there is a total failure of consideration and defendant has derived no benefit from the contract, or none beyond the amount of money which he has already advanced, such failure of consideration may be shown in bar of the action.

5. The asking of a certain price for an item of property is not a representation of its value.

6. A representation to be fraudulent must be made either with knowledge of its falsity or without such knowledge as a positive statement of a known fact.

7. The rule is that fraud must relate to a present or preexisting fact and may not be generally predicated on a representation concerning an event in the future or acts to be done in the future.

8. Where one is put upon inquiry, he is charged with notice of all of such facts as he would have learned by reasonable inquiry.

9. A defrauded party must be diligent and prudent in his effort to detect the fraud and means of knowledge thereof are equivalent to knowledge.

10. In an action upon a contract for the sale of chattels, evidence by the purchaser that after the delivery of the subject matter he inspected, retained, and used it as a whole, shows both an acceptance and a waiver of any objection that the quality was not such as the contract required.

11. A right of action for fraud may be waived. Thus, while the defrauded party may retain what he received, stand to his bargain, and recover for the loss occasioned by the fraud, he cannot do so where, having full knowledge, he does an act or acts indicating his intention to waive the fraud.

Paul I. Manhart, Omaha, for appellant.

Shrout & Brown, Collins & Collins, Abrahams & Kaslow, Finlayson, McKie & Kuhns, Francis A. McLane, Garrotto, Doerr & Nanfito, Omaha, for appellees.

Heard before SIMMONS, C. J., and CARTER, MESSMORE, YEAGER, CHAPPELL, WENKE, and BOSLAUGH, JJ.

CHAPPELL, Justice.

On March 2, 1956, plaintiff, Evelyn Nathan, filed a petition in the district court for Douglas County against defendant Bernard M. McKernan, his wife Margaret A. McKernan, and other named defendants, seeking foreclosure of a second mortgage alleged to have been duly executed and delivered to plaintiff by defendants McKernan on described real estate owned by them in Douglas County, the consideration for which was allegedly the sale by plaintiff to said defendants of a York-type locker plant in Bellevue, Nebraska. The mortgage, dated November 14, 1951, was allegedly given to secure a promissory note of even date for $8,499, payable in nine annual installments of $850 each with interest at 4 percent commencing December 1, 1952, plus one final payment of $849 with interest at 4 percent on December 1, 1961. Both the note and mortgage, and also the bill of sale to the plant, executed by the parties and delivered to said defendants, contained an acceleration clause. Plaintiff alleged that no part of the principal and interest on the note and mortgage had been paid by defendants McKernan and that $8,499 with interest at 4 percent from November 14, 1951, plus $108 which plaintiff was obligated to and did expend to insure the mortgaged property in order to protect her interests, was due and payable to plaintiff by said defendants.

Admittedly, the real property was subject to a first mortgage in favor of defendant Packers National Bank, and defendant Gerald Nathan had a judgment lien which was prior to plaintiff's second mortgage. Admittedly, all other named defendants each had either a mortgage lien or a judgment lien on the property, each of which were allegedly junior and inferior to plaintiff's mortgage. Plaintiff sought to have defendants, other than defendants McKernan, set forth their respective liens, and prayed that defendants be foreclosed of all equity of redemption or other interest in said mortgaged premises, which should be sold according to law; that plaintiff should be adjudged the amount due her on said note and mortgage; and that she should be awarded a deficiency judgment against defendants McKernan for any amount thereof which remains unpaid upon applying the proceeds of the sale to the liens according to their determined priority, and equitable relief. In that connection, admittedly the judgment lien of defendant First National Bank of Omaha, of which defendant United States of America was assignee, and the judgment lien of defendant John M. Messner, had theretofore been paid and satisfied in full. Also, plaintiff alleged that defendant C. A. Jenks, assignee, had a judgment against defendants McKernan and that said judgment was a lien on their real property for $64 costs and interest, which was junior and inferior to plaintiff's mortgage, but that the amount unpaid on said judgment was unknown. In that connection, defendant C. A. Jenks filed no pleadings and the trial court made no determination with regard to said lien, and no complaint is made here with regard thereto.

Defendant Packers National Bank filed an answer and cross-petition denying generally, except that after describing a note and mortgage on defendants' real property allegedly executed and delivered by defendants McKernan on March 10, 1947, and duly recorded, said defendant alleged that defendants McKernan were in default of certain payments as required; alleged that the whole amount unpaid was due and owing as provided by the acceleration clause of said mortgage; and prayed for foreclosure of said mortgage as a first lien, and for general equitable relief.

Defendant Gerald Nathan, assignee, filed an answer and cross-petition describing an unpaid judgment against defendant Bernard M. McKernan of which defendant Gerald Nathan was assignee. He alleged that said judgment was a second lien on defendants' real property, and prayed that upon a marshalling of liens, there should be a foreclosure of all equity of redemption or other interest in said property, which should be sold according to law; that out of the proceeds he should be paid the amount of his judgment, interests, and costs; and that if there was any deficiency, he should be given judgment therefor against defendant Bernard M. McKernan, and equitable relief.

Defendant Midwest Packing Company filed an answer and cross-petition denying generally, except that after describing a note and mortgage on defendants McKernans' real property allegedly executed and delivered by them on February 15, 1952, and duly recorded, said company alleged that no part thereof had been paid and said defendants were in default; and prayed for an accounting of the amount due, foreclosure of said mortgage, and equitable relief.

Admittedly, one John Brinjak, doing business as Town and County Heating Company, filed a petition in intervention claiming to have a mechanic's lien on defendants McKernans' real property, effective as of October 7, 1957, for $310.50, and interest, for which he prayed foreclosure and equitable relief.

Defendant Bernard M. McKernan filed an answer and counterclaim against plaintiff. He denied generally the allegations of plaintiff's petition and alleged in substance that the note and mortgage sought to be foreclosed were given for the purchase of a locker plant in Bellevue which was worthless; that said instruments were given without any consideration; and that they had been fraudulently obtained by certain alleged material concealments and various alleged false representations made by plaintiff with regard to the condition, operation, and profits of the plant. Defendant then prayed for a dismissal of plaintiff's petition. As a counterclaim, said defendant included the allegations of his answer without repetition, and alleged that as a result of said alleged concealments and false representations, defendant was induced to quit his profitable employment as an automobile salesman in order to operate the locker plant, and was compelled to expend substantial sums attempting to repair the plant. He then prayed for $10,000 damages. Defendant Margaret A. McKernan also filed a comparable answer to plaintiff's petition and prayed for dismissal of plaintiff's petition.

Thereafter, plaintiff filed replies traversing defendants McKernans' answers and an answer traversing defendant Bernard M. McKernan's counterclaim, the affirmative material substance of which is hereinafter pointed out. Plaintiff also filed a reply to the answers, and answers to the cross-petitions of defendants other than McKernan. Therein she denied generally but admitted that defendant Packers National Bank had a valid first mortgage lien on defendants' real property; that defendant Gerald Nathan, assignee, had a valid judgment lien thereon which was second in priority; that defendant Midwest Packing Company had a valid mortgage lien thereon but said lien was inferior to that of defendant Packers National Bank, Gerald Nathan, and plaintiff, which in effect would give defendant Midwest Packing Company a lien fourth in priority; that defendant Omaha Steak Company had a valid judgment lien thereon which, under the circumstances, in effect would give said def...