Kern v. Henry

BARNARD, P. J. In March, 1928, the defendants purchased from the plaintiffs a certain tract of land, the deal being handled through an escrow. The escrow instructions recited that the purchase price of the property was $100,000, payable as follows: $26,000 by the delivery of a deed of trust executed by third parties covering an apartment house in Long Beach, $4,000 by the conveyance of other real property, $500 in cash, and the balance of $69,500 to be secured by a note and deed of trust on the property sold, to be executed by the defendants. In relation to the $26,000 trust deed referred to, the escrow instructions provided that the defendants would deliver to the escrow agent the note and trust deed, with a policy of title insurance and a policy of [48]fire insurance, and that: “There will also be delivered with said promissory note and said deed of trust such instruments as may be necessary to vest title thereto in the vendors and said promissory note will be duly endorsed by the vendees, and there will also be furnished therewith a statement from the makers of said promissory note and deed of trust that the said sum of twenty-six thousand dollars remains unpaid on said promissory note, and that interest has been paid thereon to a date not later than April 1, 1928, and that there are no defenses or offsets to said note.”

Apparently the papers called for by the escrow instructions were delivered to the escrow agent and the escrow closed. At some time, and the evidence justifies the inference that it was immediately after the transaction, was closed, one of the plaintiffs made objection to the defendants to the manner in which the third party note had been indorsed. That note had been indorsed as follows:

“Long Beach, Cal; March 28th, 1928

“For Value Received I hereby transfer, grant and assign to Herbert F. Kern, Reuben W. Kern, and Rose Kern Good, all my right, title and interest in the within note, together with all rights accrued and to accrue under the deed of trust securing same, so far as the same relate to this note, without recourse.”

By consent and agreement of the parties the words “without recourse” were thereupon stricken out, the change being initialed by the defendants. Thereafter, the plaintiffs collected interest on said third party note up to July 1, 1930, although the principal sum became due on April 27, 1930. Nothing further was paid on the note and for nearly two years the plaintiffs made various attempts to collect from the makers thereof and the makers of the note made a number of attempts to secure extensions from the plaintiffs. Finally, on January 29, 1932, the plaintiffs had the Long Beach property sold under the trust deed, the same netting $9,183.28. No action to collect the deficiency was ever brought against the third parties, and no notice of any kind was ever given these defendants that there had been any default or that anything was expected of them until this suit was filed seeking to recover a balance of $18,354.76.