Booker v. Everhart
| Decision Date | 24 January 1978 |
| Docket Number | No. 56,56 |
| Court | North Carolina Supreme Court |
| Parties | , 24 UCC Rep.Serv. 165 James J. BOOKER and Oren W. McClain v. Koyt W. EVERHART, Jr., Koyt W. Everhart, Sr., and wife, Beatrice M. Everhart. |
Womble, Carlyle, Sandridge & Rice by Allan R. Gitter and William C. Raper, Winston-Salem, for defendants-appellants.
Hudson, Petree, Stockton, Stockton & Robinson by Norwood Robinson and Steven E. Philo, Winston-Salem, for plaintiffs-appellees.
Prior to filing their answer to plaintiffs' complaint, defendants made a motion under Rule 12(b)(7) for dismissal of the action for plaintiffs' failure to join a necessary and indispensable party, viz., Jane C. Everhart, the payee and assignor of the alleged note.
In an order filed May 13, 1974, Judge McConnell ruled, after consideration of the motion, complaint, affidavit of Jane C. Everhart and arguments of counsel, that the motion of defendants should be denied. This constitutes error.
Plaintiffs attached to their complaint two documents, labeled "Exhibit A" and "Exhibit B". Exhibit A reads, in part, as follows:
Exhibit B, executed December 6, 1972 by Jane C. Everhart, says the following:
'December 6, 1972
FOR Services rendered and for future collection services that might be rendered, the undersigned assigns, transfers and conveys a one-third (1/3) interest to the undersigned, endorsed by his parents, in and to a certain note dated October 30, 1972 in the amount of $150,000.00 from Koyt Everhart, Jr., to Booker and McClain Attorneys, a partnership; said partnership being composed of James J. Booker and Oren W. McClain and further authorize all collections to be made through their office at 2510 Wachovia Building, Winston-Salem, N.C.27101.
s/ JANE C. EVERHART"
It is noted that this assignment purports to assign a one-third interest "to the undersigned", who is Jane C. Everhart; however, we shall treat it as an assignment of one-third interest to plaintiffs.
Plaintiffs argue, in effect, as follows: (1) that the document marked "Exhibit A" is a negotiable instrument meeting the formal requirements of G.S. 25-3-104; (2) that, by Exhibit B, they were assigned a one-third (1/3) interest in the note, and were appointed collection agents for the entire amount of the note; (3) that Exhibit B is a restrictive endorsement of the note to them as collection agents, and that, under G.S. 25-3-205 and 206 they are "holders" of said note; and (4) that under 25-3-301, Rights of a holder, they have the right to enforce payment of the note in their own name, without joining the owner of the note, Jane Crater Everhart, as a party.
Plaintiffs' argument fails from its outset. They cannot avail themselves of the benefits concerning parties which they read into G.S. 25-3-301, simply because the document labeled "Exhibit A" is not a negotiable instrument within Article 3 of Chapter 25 of the General Statutes.
G.S. 25-3-104, Form of negotiable instruments, says:
Under the law of this State prior to the adoption of the Uniform Commercial Code, it was clearly established that a conditional promise or contingent condition contained in the instrument itself had the effect of defeating the negotiability of the instrument. See Pope v. Righter-Parey Lumber Co., 162 N.C. 206, 78 S.E. 65 (1913); First Nat'l Bank v. Michael, 96 N.C. 53, 1 S.E. 855 (1887); Goodloe v. Taylor, 10 N.C. 458 (1825). This prior law is carried forward in G.S. 25-3-104(1)(b).
G.S. 25-3-105. When promise or order unconditional, states in part:
The official comment to 25-3-105 says that, as far as negotiability is concerned, the conditional or unconditional character of the promise or order is to be determined by what is expressed in the instrument itself. When the instrument itself makes express reference to an outside agreement, transaction or document, the effect on the negotiability of the instrument will depend on the nature of the reference. G.S. 25-3-105.
In the present case, the instrument marked Exhibit A says, after the promise to pay Jane Crater Everhart $150,000: " . . . in lieu of a property settlement supplementing that certain Deed of Separation and Property Settlement, dated May 1, 1972, the terms of which are incorporated herein by reference . . .." (Emphasis added).
Incorporation by reference has been defined as:
"The method of making one document of any kind become a part of another separate document by referring to the former in the latter, and declaring that the former shall be taken and considered as a part of the latter the same as if it were fully set out therein." Black's Law Dictionary (Revised 4th Ed.), Incorporation.
To incorporate a separate document by reference is to declare that the former document shall be taken as part of the document in which the declaration is made, as much as if it were set out at length therein. Railroad Co. v. Cupp, 8 Ind.App. 388, 35 N.E. 703. See also, 17 Am.Jur.2d, Contracts, P 262.
By incorporating into the note in question the Deed of Separation and Property Settlement, the parties made the note "subject to" any and all possible conditions contained in those prior documents. Under 25-3-105(2)(a), this renders the promise to pay the sum certain conditional. Whether or not the documents incorporated contained any such conditions or contingencies is a matter beside the point. United States v. Farrington, 172 F.Supp. 797 (D.C.Mass.1959). The essential point is that all of the essential terms of the note in question cannot be ascertained from the face of the instrument itself. Because separate documents have been made a part of the note by its express terms, the promise contained therein is conditional, and the note nonnegotiable.
In Holly Hill Acres, Ltd. v. Charter Bank of Gainesville, 314 So.2d 209, 17 U.C.C.Rep.Ser. 144 (Fla.1975), the Florida Court held that, under § 3-105(2)(a) of the U.C.C., a promissory note which incorporated by reference the terms of the mortgage securing it did not contain the unconditional promise to pay required by 3-104(1)(b). The note in that case said: "The terms of said mortgage are by this reference made a part hereof." In the course of its opinion that court noted that this is not a mere reference to the mortgage or agreement on which the note is based. " . . . (S)uch reference in itself does not impede the negotiability of the note. There is, however, a significant difference in a note stating that it is 'secured by a mortgage' from one which provides, 'the terms of said mortgage are by this reference made a part hereof.' . . . "
Under G.S. 25-3-105(1)(b) and (c), it is clear that mere reference in a note to the separate agreement or document out of which the note arises does not affect the negotiability of the note. But to go beyond a reference to the separate agreement, by incorporating the terms of that agreement into the note, makes the note "subject to or governed by" that agreement, and thus, under G.S. 25-3-105(2)(a), renders the promise conditional and the note nonnegotiable.
Since the instrument in the present case is nonnegotiable plaintiffs cannot be "holders" under Article 3, and thus cannot argue that, under G.S. 25-3-301, they have the power to enforce this note as collection agents for the owner. Plaintiffs, at best, are collection agents for a debt owing to Jane Crater Everhart, and, in addition, possess a possible ownership interest in a portion of the debt stemming from Jane Crater Everhart's purported partial assignment of the debt. The right to receive money due or to become due under an existing contract may be assigned. Lipe v. Guilford Nat'l Bank, 236 N.C. 328, 72 S.E.2d 759; Wike v. Guaranty Co., 229 N.C. 370, 49 S.E.2d 740. Since plaintiffs are the assignees of a contractual right, the general law concerning parties must be examined to determine who is the real party in interest in this action.
G.S. 1-57 says, in part:
"Every action must be prosecuted in the name of the real party in interest . . .."
Chapter 1A, Rule 17 of the Rules of Civil Procedure states, in part:
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...may be joined. Whether proper parties will be ordered joined rests within the sound discretion of the trial court. Booker v. Everhart, 294 N.C. 146, 240 S.E.2d 360 (1978). A party is a necessary party to an action when he is so vitally interested in the controversy involved in the action th......
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