MсNAIR v. PUBLIC SAVINGS INSURANCE COMPANY OF NORTH AMERICA ET AL.
No. 13,116
Appellate Court of Indiana
October 25, 1928
Mandate modified December 14, 1928
386 Ind. App. 163
Bernard Korbly, John G. McNutt and Thomas M. Honan, for appellees.
McMAHAN, J.----This is an action by the Public Savings Insurance Company of America, hereafter designated as “appellee,” against Roy L. McNair and Mae F. McNair, his wife, and others to recover judgment on a note for $10,000, and two interest coupon notes of
The complaint alleges the execution of the note and coupons by Roy L. McNair, the execution of the mortgage by the latter and his wife, the sale of the land by McNair to the defendants Edward L. Selvage and Mary M. Selvage, who, as a part of the purchase price, assumed and agreed to pay the notes so secured by the mortgage. The principal note prоvides that, “if any installment of interest is not paid when due, then, at the option of the holders of this note, the said principal sum, with all interest due or accrued thereon, shall become due and payable at once without notice, with ten percent attorney‘s fees.”
The complaint alleges that the defendants, other than those hereinbefore named, had or claimed to have an interest in the real estate in question and that such claims were inferior to the lien of said mortgage; that the defendants had failed to pay the interest coupon notes due June 15, 1924, and December 15, 1924; that, by reason of the non-payment of said notes, and because of the provisions of the principal note and mortgage, the plaintiff exercised its option to and did declare the principal note due; and asked for a personal judgment against Roy L. McNair, Edward L. Sеlvage and Mary M. Selvage for $14,000 and for a foreclosure of the mortgage as against all of the defendants. The principal note and the two interest coupons are copied and set out in the complaint, while a copy of the mortgage, marked as an exhibit, is by reference made a part of the complaint.
Mrs. McNair filed an answer of denial and of no consideration. She also filed a cross-complaint, in three paragraphs, against the plaintiff and all of her codefendants. The first paragraph alleges that she joined in the execution of the mortgage for the sole purpose of re
The second paragraph of cross-complaint alleges that she is the wife of Roy McNair, who, in June, 1921, made a written application tо appellee for a mortgage loan of $10,000 on certain real estate in Jackson county owned by her husband, said loan to run for five years at ----% interest, and, in such application, her said husband agreed to repay principal and interest at such place as appellee might designate; that this application was signed by Roy L. McNair, a copy of which is filed with and made a part of this paragraph of cross-сomplaint. It also alleges that appellee accepted such application and agreed to make the loan upon the terms and security mentioned in the application and not otherwise; that there was no agreement between appellee and Roy L. McNair or between appellee and the cross-complainant that such loan should be secured by any other or additional seсurity than mentioned in the application; that purporting to act pursuant to the application, appellee prepared and submitted to Roy McNair for his signature the principal and coupon notes to evidence the indebtedness, and that appellee prepared and submitted to Roy L. McNair and the cross-complainant for their execution such mortgage on the real estate mentioned in the аpplication to secure the indebtedness of Roy McNair to be created by said loan; that, in submitting said mortgage to the cross complainant, appellee represented that it was necessary for her to join therein to release her inchoate
The third paragraph, like the second, alleges the facts relating to appellant‘s husband making a written application to appellee for a mortgage loan of $10,000; that appellee accepted such application upon the terms and security therein mentioned without any agrеement that such loan should be secured by any other or different security than mentioned in the application; that said application was made upon a blank furnished by plaintiff, a copy of such application being set out in full; that appellee, purporting to act under said agreement, prepared
The issues were closed by a reply of denial and by an answer denying the allegations of thе second and third paragraphs of cross-complaint. Roy L. McNair appeared by counsel but filed no answer. All other defendants were defaulted. A trial by the court, without jury, resulted in a finding that there was due appellee from appellant, Roy L. McNair, Edward L. Selvage and Mary M. Selvage, on the note and mortgage sued on, $12,896.12 plus $1,246.14 attorney fees, without relief, and that said mortgage should be foreclosed. There was a finding in favor of appellant on the first paragraph of her cross-complaint that she executed the mortgage as surety for her husband and that the property of her
The undisputed evidence shows that appellant and her husband resided in Indianapolis; that the husband made a written application to appellee for a mortgage loan of $10,000; that appellant did not join in that application; that the application was definite as to all its terms except that the rate of interest was not stated; that the applicant, Roy L. McNair, promised to pay interest and reserved the right to prepay the loan on definite terms; that he promised to secure the loan by a mortgage on property owned by him and described in the application; that the application contained a detailed statemеnt as to his financial condition; that he also promised to pay in advance a fee to cover the expenses of appellee in investigating the security offered and closing the proposed loan; that appellee inspected the real estate described in the application and notified appellant‘s husband that the loan was acceptable; that appellant‘s name was not mеntioned in the application except in answer to an inquiry as to whether the applicant was married, and, if so, the name of his wife. She was never requested by anyone to sign the note or the interest coupons or to become security for the payment of the loan, and she did not sign the note or coupons. There was no agreement or understanding on the part of anyone that appellant should become security for the payment of the loan nor was anything ever said upon that subject. After the loan was accepted, appellee prepared the note,
Appellee, having prepared the application and mortgage on blank forms of its own, knew or at least was bound to know that the mortgage as drawn did contain such a provision, and being intrusted with preparing the mortgage and knowing that appellant had not seen the mortgage until it was placed before her for her signature, and knowing she did not read the same, was in duty bound to inform her that the provision wherein she agreed to pay the mortgage debt had been inserted before requesting her to sign the mortgage. Appellant testified that she was informed it would be necessary for her to sign the mortgage as the wife of the mortgagor, and that she signed the mortgage as such, in order to release her inchoate interest and not otherwise.
The only possible inferеnce to be drawn from the undisputed evidence is that the insertion of the provision to the effect that the mortgagors should pay the debt was by mistake or by fraud on the part of appellee, and, in either instance, equity will grant relief. Equity will reform a written instrument where there is a mutual mistake, or a mistake on one side and fraud or inequitable conduct on the other. Simmons Creek Coal Co. v. Doran (1891), 142 U. S. 417, 35 L. Ed. 1063. As was said in Koons, Gdn., v. Blanton (1892), 129 Ind. 383, 27 N. E. 334: “It is not alone in cases of mutual mistake that a court of equity will reform a written instrument. That relief will be granted where by the fraud of one of the parties to the instrument the language inserted in it is materially different from that agreed upon.” As heretofore stated, the clear understanding between the parties was that appellant was to join with her husband in the mortgage for the purpose of releasing her inchoate interest. Appellee undertook and assumed the duty of preparing the mortgage so as to confоrm with the application. Appellee did prepare the mortgage and inserted the clause imposing a personal liability upon appellant, and tendered that mortgage to appellant for her signature, knowing the mortgage was not drawn in accordance with the application, and knowing that appellant had not been informed of such fact. The undisputed evidence brings this case within the doctrine that where оne party to a contract undertakes to draw up the contract in accordance with a previous understanding, but drafts the contract contrary to that understanding, and permits the other party to sign the same without informing him that the contract is not in conformity with the previous understanding, such conduct on the part of the party preparing the contract is fraudulent.
Mr. Pomeroy, 2 Pomeroy, Eq. Jur. (4th ed.) §902, in speaking on this subject, says: “Concealment becomes fraudulent only when it is the duty of the party having knowledge of the facts to discover them to the other; and this brings back the question, When does such duty rest upon either party to any transaction? All the instances in which the duty exists, and in which a concealment is therefore fraudulent, may be reduced to three distinct classes. These three classes are, in general,
The rule is stated in 23 R. C. L. 328, as follows: “If one whose duty it is to prepare the instrument according to a previous agreement prepares one materially different from the agreement by changing the terms and delivers it as in accordance with such agreement, he commits a fraud which entitles the deceived party to a reformation. And whether the deviation from the agreement is the result of intentional or unintentional misstatement of the defendant is immaterial, for equity has power to correct it as well in the former as in the latter case.”
In Botsford v. McLean (1866), 45 Barb (N. Y.) 478, it was said: “If one party is trusted to reduce the contract to writing he is bound to do it truly, and any variation from it, either by omitting some of its terms, or by inserting provisions not embraced in it, if not known to the other party and distinctly assented to by him, is a clear fraud.”
In Deischer v. Price (1894), 148 Ill. 383, 36 N. E. 105, Deischer induced the mother, and certain brothers and sisters of his deceased wife, to join in the execution of a deed which purported to convey all their interest in the land to him. In the negotiations leading up to the execution of the deed, the only conveyance he had requested them to make, or which they consented to make, was of a life estate with a provision that upon his deаth such interest was to go back to them. Deischer undertook to have a deed drawn up which would effectuate such conveyance. When the deed was presented to them for their signatures, they signed it without examination. In discussing the right to a reformation of the deed and the facts in that case, the court said: “The fair conclusion from all the evidence is, that at the time the deed was executed, Deischer, as well as the comрlainants, supposed the deed to be so drawn as to effectuate the intention of the parties, and therefore that the mistake was mutual. But if it should be admitted that he, at the time, was aware of the terms and legal effect of the deed, and that the mistake was wholly on the part of the complainants, his position would in no respect be improved. He must in that case have known that the complainants were executing . . . under a mistake, brought on by his own agency, and his conduct would then be a fraud, which coupled with the mistake into which he had led the complainants, would entitle them to a reformation of the deed.”
In Williams v. North German Ins. Co. (1885), 24 Fed. 625, the court announced the rule to be that: “Where an instrument fails to represent what both parties intended to have it represent, and one party has drawn up
For other leading cases on this subject see Zarecki v. Guarantee Realty Co. (1914), 82 N. J. Eq. 489, 89 Atl. 513; Bradshaw v. Provident Trust Co. (1916), 81 Ore. 55, 158 Pac. 274; Archer v. California Lumber Co. (1893), 24 Ore. 341, 33 Pac. 526; Albany City Sav. Inst. v. Burdick (1881), 87 N. Y. 40; Parker v. Jenks (1883), 36 N. J. Eq. 398; Bull v. Titsworth (1878), 29 N. J. Eq. 73.
The failure of appellant to read the mortgage before signing it and thus discovering the fraudulent conduct of appellee does not disentitle her to relief. As was said in Lloyd v. Hulick (1905), 69 N. J. Eq. 784, 63 Atl. 616, 115 Am. St. 624: “In the transaction of business men ordinarily deal with one another in the belief that each is honest. If the opposite belief prevailed in such dealings attempted frauds would rarely be successfully carried into execution and courts would seldom be called upon to grant relief against thеm. Failure to discover an intended fraud before it has been actually perpetrated must necessarily exist in every case where the courts are appealed to to relieve the wronged party from its effects, and the fact that the exercise of a greater degree of prudence on the part of him who has been defrauded would have prevented the fraud from being successfully carried through affords no ground for refusing relief.”
Appellee‘s complaint is not based upon the theory
Judgment reversed, with direction to sustain appellant‘s motion for a new trial and for further proceedings.
ON MOTION TO MODIFY MANDATE.
McMAHAN, P. J.-Motion to modify mandate sustained, and, by agreement, the mandate is modified so as to read as follows:
Judgment reversed in so far as it adjudges that plaintiff recover a personal judgment against appellant Mae F. McNair, and in so far as it orders that any deficiency upon the sale of the real estate shall be made out of the property of appellant and in so far as it adjudges that she is entitled to nothing on Paragraphs II and III of her cross-complaint.