Daily Development for Wednesday, April 26, 1995

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

I apologize for cluttering your message box with my private note to a friend concerning Chinese students. Once I push the wrong button on this software, the thing is sent, and I can't retrieve it. Having made that mistake, I was loathe to sent another message containing only this apology, and resolved to apologize when I had something more to say.

Here is an interesting case that supplies a lesson on how carefully lawyers and clients should read supporting documentation of consolidation agreements. Following that are two more recent cases involving mortgage debts that I thought were short and interesting and made a nice package with the first case.

MORTGAGES; DEBT; ESTOPPEL: A party who signs a consolidation agreement with respect to a mortgage note is estopped from denying liability on the note even though the party's signatures on the original note and mortgage were forged. Commonwealth Land Title Insurance Company v. Mattera, 616 N.Y.S.2d 798 (App. Div. 1994). The consolidation agreement contained the language: "I agree to take over all the obligations under the Notes and Mortgages as consolidated and modified by this Agreement . . . even if some other person made those promises and agreements before me." The court stated that this established the intent of the signor of the consolidation agreement to be bound by the notes and mortgages on the schedule as a matter of law, and prevented any forgery argument with respect to the original signatures on the note and mortgage in question in the case.

Despite the court's assertion that its interpretation was compelled as a matter of law, it went on to analyze the equities of the case, pointing out that the signor of the consolidation agreement appeared to have received the benefit of the proceeds of the original note and mortgage, whether he signed them or not.

Comment: The editor has some concern with the court's construction of the note language as a matter of law. If, for instance, the debtor was shown a stack of notes and mortgages apparently signed by him, and then signed a consolidation agreement of the type described, it would not appear that the debtor should be barred as a matter of law from alleging that one of the signatures was fraudulent. The quoted language arguably addresses the problem of prior assumed notes, rather than forgeries. Waiver of a right to claim fraud should be more specific than the language here. The result, however, seems correct on an analysis of the equities.

Practice Tip: When clients are in debt trouble, the debt claims come at them in big groups. Consolidation and extension agreements are welcome relief, so there is a tendency to ignore the particular items in a group since you are getting relief from the whole stack. Nevertheless, as this case indicates, often a consolidation agreement can create new indebtedness or waive existing defenses. Study carefully all of the claims addressed in any consolidation.

MORTGAGES; DEBT; CO-MAKERS: Where each of two co-makers of a promissory note encumbered his or her interest in the property to secure not only his or her own individual obligations on the note but also the obligations of the other co-maker, the lien on the property remains in effect on each co-maker's interest notwithstanding the extinguishment of one co-maker's personal liability on the note. Cache National Bank v. Lusher, 882 P.2d 952 (Colo.

1994).

MORTGAGES; DEBT; PAYMENT FOR SERVICES: A mortgage which secures advances for accounting services subject to a maximum amount sufficiently describes the debt secured and is forecloseable. Plummer & Co., Inc. v. National Oil, 642 N.E. 2d 291 (Ind. App. 3 Dist. 1994).

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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