Rex v. Warner

• Decision Date: 06 December 1958
• Docket Number: No. 41103,41103
• Citation: 183 Kan. 763,332 P.2d 572
• Parties: W. H. REX, Appellee, v. Howard C. WARNER and Anna Marie Warner, Appellants.
• Court: Kansas Supreme Court

Page 572

332 P.2d 572

183 Kan. 763

W. H. REX, Appellee, v. Howard C. WARNER and Anna Marie Warner, Appellants.

No. 41103.

Supreme Court of Kansas.

Dec. 6, 1958.

Rehearing Denied Jan. 27, 1959.

Syllabus by the Court

The record in an action seeking specific performance of an oral contract to execute and deliver a promissory note and a second mortgage upon land bought by the defendants, of which the purchase price was paid in part with proceeds of plaintiff's loan to them on February 12, 1954, upon their oral promise to secure its repayment by a note and mortgage upon the property when title was obtained, examined and held: (1) that equity will regard as done that which a party under his agreement ought to have done, and will treat the transaction as creating an equitable mortgage upon the land in favor of the lender; (2) that plaintiff's action was barred by G.S.1949, 60-306, Second, by reason of his delay until September 21, 1957, to bring the action, more than three years after defendants breached their contract to execute and deliver the instruments on February 12, 1954, and the lien of the equitable mortgage was unenforceable; (3) under the facts alleged, defendants were not estopped by the oral promises and representations of one of them, as set forth in the opinion, to plead the statute of limitations, and (4) the trial court erred in overruling defendants' demurrer to the amended petition.

Allyn M. McGinnis, El Dorado, argued the cause, and Walter F. McGinnis, El Dorado, was with him on the briefs for appellants.

J. B. McKay, El Dorado, argued the cause, and James B. McKay, Jr., E. Dorado, was with him on the briefs for appellee.

FATZER, Justice.

The action was one to compel specific performance of an oral contract. Defendants, Howard C. Warner and Anna Marie Warner, his wife, filed a special demurrer upon the ground that the alleged oral contract sued upon was barred by the statute of limitations, which was overruled by the trial court, and the defendants have appealed.

Pertinent allegations of plaintiff's amended petition are quoted and summarized as follows: From January 15, 1954, until September 10, 1954, Howard C. Warner was in plaintiff's employ in El Dorado, and Warner and his wife resided in that city. A desirable home was not available for rent, but defendants had an opportunity to purchase a home for $14,000. They could obtain a loan of $9,000 from a savings and loan association but could not pay the balance of the purchase price. Warner orally requested plaintiff to lend defendants $5,000 with which to complete the payment of the purchase price, and,

'orally stated and agreed that if plaintiff would lend defendants said sum, defendants would execute a promissory note payble to plaintiff for said amount and a second mortgage, junior only to said mortgage to Mid-Continent Federal Savings and Loan Association, to secure the payment of said note. Said conversation was renewed and repeated at and during the numerous oral conversations plaintiff had with defendant Howard C. Warner prior to February 12, 1954. During the course of said conversations plaintiff agreed to lend defendants $5,000.00 for said purpose, and plaintiff directed defendant Howard C. Warner to have John L. Harrison, who was then the Secretary of said Loan Association, and who acted as agent of plaintiff and defendants in the transactions herein referred to, prepare a note and second mortgage for said sum of $5,000.00, and defendant Howard C. Warner then and there orally agreed to have said Harrison prepare said note and mortgage, and orally promised and agreed that he and his wife, defendant Anna Marie Warner, would thereupon execute said note and mortgage and return the same to said Harrison for the plaintiff.' (Emphasis supplied.)

On February 12, 1954, the transaction was completed and the real estate was conveyed to defendants by warranty deed. As a part of that transaction defendants executed and delivered a first mortgage to the savings and loan association for $9,000 which was duly recorded, and in accordance with plaintiff's and Warner's oral contract, plaintiff executed and delivered his $5,000 check to the savings and loan association, which was used to complete the purchase price. The transaction was handled and closed by Harrison as secretary for the loan association at his office, and plaintiff was not present after he gave Harrison his check. The defendants immediately took possession of the real estate and used and occupied it as their home until shortly before this action was filed September 21, 1957.

Plaintiff alleged he relied upon Warner to execute and cause his wife to execute the note and mortgage and deliver them to Harrison and believed Warner had done so. On September 10, 1954, Warner left plaintiff's employ without informing him that defendants had not executed the note and mortgage. At that time Warner orally inquired of plaintiff what disposition he wanted defendants to make of the real estate. Plaintiff, believing that the note and mortgage had been executed and delivered to Harrison, orally told Warner that so long as he occupied the real estate as his home and kept up the payments on the first mortgage and paid the taxes, he would not charge any interest or require any payments to be made on the $5,000 until after the first mortgage had been paid, but that if the defendants ceased to occupy the property as their home, he would require that it be sold and the proceeds applied to the first mortgage and to plaintiff's mortgage. Warner replied the proposal was very generous, and he accepted it.

On or shortly after October 15, 1954, plaintiff learned for the first time that the note and mortgage had not been executed and delivered to Harrison, and that Warner had not requested Harrison to prepare them. Upon plaintiff's request Harrison prepared the note and mortgage and delivered them to Warner, who informed Harrison they were in accordance with his oral contract with plaintiff and that he and his wife would execute them and return them to Harrison. A few days later Warner orally informed Harrison that his wife had refused to execute the note and mortgage.

In September 1955 plaintiff orally requested Warner to have his wife execute the note and mortgage. Warner told plaintiff he had signed both instruments and would have his wife sign them and deliver them to plaintiff or Harrison.

Shortly prior to September 21, 1957, the date this action was commenced, defendants moved to Reno County, Kansas. As soon as plaintiff located them, he went to Arlington and had a conversation with both defendants. Each agreed that plaintiff had loaned the $5,000 and that Warner had orally agreed to give plaintiff a note and second mortgage covering the real estate for said sum, and that defendants owed and would pay plaintiff the $5,000. Warner stated he had signed both instruments, but that Mrs. Warner had not and would not sign them.

It was alleged plaintiff believed and relied upon Warner's statements and representations and was lulled into a sense of security until he was informed by defendants shortly prior to the commencement of this action that Mrs. Warner had not and would not sign the note and mortgage. By reason of Warner's representations and statements, defendants are estopped to plead the statute of limitations.

Plaintiff further alleged he had never seen the note and mortgage and was unable to state the terms and provisions of them; that he did not know the date on which they were prepared; that he did not know whether they were in fact executed by Warner but that both instruments were in the possession of the defendants and the terms and provisions were known to them. The prayer was for a decree of specific performance ordering and directing defendants to execute and deliver the note and mortgage to plaintiff, and further, that in the event the defendants failed to execute both instruments the judgment and decree stand and operate as such note and mortgage; that plaintiff have judgment against the defendants for $5,000 with six percent interest thereon from February 12, 1954, and that it be adjudged and decreed that the mortgage be a valid and subsisting lien subject only to the lien of the first mortgage as security for the payment of the judgment, and that the mortgage be foreclosed, the real estate ordered sold, and the proceeds be applied toward the payment of plaintiff's judgment.

Defendants specify as error the overruling of their special demurrer, and state in their brief the questions presented are as follows: (1) Did plaintiff acquire an equitable mortgage by virtue of the alleged oral contract? (2) Does an equitable mortgage, based solely upon an oral contract have a longer period of time under the statute of limitations than other types of oral agreements where no payment or written acknowledgement of the indebtedness has been made? (3) Was the plaintiff lulled into a false sense of security by statements and representations of the defendants, which caused him to not take legal action until after three years from the date of the alleged transaction, thus tolling the statute of limitations?

With respect to the first question, defendants concede that under the allegations of the amended petition plaintiff is entitled to an equitable mortgage upon the real estate in controversy. They were well advised to make this concession (Foster Lumber Co. v. Harlan County Bank, 71 Kan. 158, 160, 80 P. 49; Charpie v. Stout, 88 Kan. 318, 322, 128 P. 396; Fitzgerald v. Fitzgerald, 97 Kan. 408, 155 P. 791; Farmers State Bank v. Pickering, 111 Kan. 132, 205 P. 1110; Farmers State Bank v. St. Aubyn, 120 Kan. 66, 242 P. 466; Assembly of God v. Sangster, 178 Kan. 678, 290 P.2d 1057; 18 A.L.R. 1100, annotation). In Foster Lumber Co. v. Harlan County Bank, supra, this court said:

'Having obtained the bank's money upon an agreement to give it a mortgage, Underwood should have executed and delivered...