Charleston Hill Nat. Mines, Inc. v. Clough

• Decision Date: 10 April 1963
• Docket Number: No. 4548,4548
• Citation: 380 P.2d 458,79 Nev. 182
• Parties: CHARLESTON HILL NATIONAL MINES, INC., Appellant, v. Mary L. CLOUGH, Respondent.
• Court: Nevada Supreme Court

Page 458

380 P.2d 458

79 Nev. 182

CHARLESTON HILL NATIONAL MINES, INC., Appellant, v. Mary L. CLOUGH, Respondent.

No. 4548.

Supreme Court of Nevada.

April 10, 1963.

Brian L. Hall, Reno, for appellant.

Vargas, Dillon & Bartlett and Alex. A. Garroway, Reno, for respondent.

McNAMEE, Justice.

Respondent sued appellant in the court below on two promissory notes executed to her as payee, one dated September 23, 1957, in the sum of $43,548.36, and the other dated May 22, 1958, in the sum of $2,750.

Each note was signed:

'CHARLESTON HILL NATIONAL MINES, INC.

'By: Mary L. Clough, President

'By: Leon R. Grantz, Vice President

'Attest: John F. Link, Secretary.'

In its amended answer, Charleston Hill sets up as an affirmative defense that there was no consideration therefor and that the notes 'were not to the best interests of the defendant corporation and are therefore void.' As a separate defense, Charleston Hill alleges that there are setoffs against Clough's claims.

The notes are identical except as to the amount, date, and recital of the actual consideration therefor, and each commences with the words 'For value received.'

The note of September 23, 1957, recites:

'This note is issued to the payee in consideration of amounts of money advanced and loaned to the maker by payee over a period of several years past, the receipt whereof is specifically acknowledged and the acts of the maker in borrowing and receiving said amounts is hereby specifically approved and ratified.'

The note of May 22, 1958, recites:

'This note is issued to the payee in consideration of amounts of money advanced and loaned to the maker by payee since September 1, 1957, until May 22, 1958, the receipt whereof is specifically acknowledged and the acts of the maker in borrowing and receiving said amounts is hereby specifically approved and ratified.'

The fact that these are not mere recitals, but are, respectively, agreements--covenants to which the maker bound itself, will be considered later.

This is an appeal from a judgment on a jury verdict in favor of respondent for the full amount of the notes.

Appellant contends that it was error for the lower court not to permit evidence concerning the consideration given for the notes. On the other hand, respondent maintains that the allowance of such proffered testimony would violate the parol evidence rule, because each note recites that it is issued to the payee in consideration of the amounts of money advanced over specified periods.

The rule that parol evidence is not admissible to contradict or vary an absolute agreement to pay money on the face of a note does not exclude evidence as between the original parties showing a total or partial failure of consideration was recognized in Dixon v. Miller, 43 Nev. 280, 285, 184 P. 926, 927. 'The reason is obvious. The real consideration for a promissory note is never apparent from its face. No conclusive presumption arises from the words 'for value received,' and when a note is challenged for want or failure of consideration the fact must be learned from extransic evidence which relates to the point of time when the note was executed and discloses the dealings between the parties.'

The court in that case was considering a note in which the real consideration did not appear on its face. Such is not the situation in the present case. Although the notes contain the words, 'for value received,' the later recitals in both notes specify the actual considerations for their execution, to wit, money advanced by the payee to the maker. The notes were given to satisfy the indebtedness resulting from such advances. The present situation is more analogous to that in the case of Sims v. Grubb, 75 Nev. 173, 176, 336 P.2d 759, 760, where this court in limiting the rule enunciated in Dixon v. Miller, supra, said:

'The situation here is entirely different. In this case there was more than a mere note executed by the respondent. There was also a written agreement (escrow instructions) where the nature of the consideration for the note was expressly set forth. It is not contended that there was any failure of consideration so expressed, the respondent receiving not only the deed and bill of sale but also possession of the property for approximately ten months. She can no more contradict or vary the terms of that written agreement by oral testimony of other and additional consideration promised for the note than could the appellant have shown by parol evidence that respondent had agreed to pay him a greater sum for the property than that expressed in the written agreement.

'The court erred in admitting such evidence of an oral agreement as its sole purpose was to vary the terms of the written contract of the parties.'

The fact that the agreed consideration for the note is set out in the note itself in the present case, rather than in a separate contemporaneous written instrument as in Sims v. Grubb, does not change the situation. Spells v. Swift & Co., 34 Ga.App. 620, 130 S.E. 593.

Here, as stated above, the appellant did plead as a defense that the notes were given without consideration, and although it is impossible to tell what the proffered testimony relating thereto would have been in the absence of an offer of proof ¹ we are of the opinion that where the true consideration is stated in the note, such evidence would be inadmissible. We are not here dealing with the situation which was present in Dixton v. Miller, supra, where the consideration was expressed merely by the words 'for value received.' There is nothing in the Negotiable Instruments Act or in the parol evidence rule which as between the parties precludes proof of no consideration or failure of consideration in suits upon notes which contain the bare recital of consideration in the words 'for value received.' The rule is otherwise where the true or actual consideration is set forth in the note, constituting provisions of a contractual nature.

In Gunter, Inc. v. Hindman, 175 S.C. 436, 179 S.E. 494, 501, this distinction was pointed out as follows: '* * * it has always been recognized as a part of the fundamental law on this subject that parol testimony may be admitted to show a different consideration from that expressed in a written instrument, when the statement of the consideration is intended as a mere recital, such as 'one dollar and other valuable considerations,' or such as the term 'value received,' or any other words indicating a mere recital as to the consideration in a written instrument such as a deed or mortgage or note or other paper; but parol testimony cannot be admitted to contradict the language of the written instrument in reference to the consideration, when it is contractual in its nature.'

3 Corbin, Contracts § 587, p. 510, notes the distinction as follows:

'Promissory notes and bills of exchange are seldom intended by the parties to be complete integrations of the agreement in pursuance of which they are given. In order that they may be negotiable, the face of the note must contain an auconditional promise to pay a sum of money. As against a holder in due course, proof of extrinsic provisions and conditions does not establish a good defense. This has nothing to do with the 'parol evidence rule.' But as against any one not a holder in due course, proof of such extrinsic provisions and conditions should nearly always be permitted, as is in fact down in numberless cases. At other times, however, it has been held that offered evidence was inconsistent with the face of the note and inadmissible. No attempt will be made here to reconcile or to distinguish these decisions. Of course, it is possible for the parties to integrate their entire contract on the face of a promissory note, however seldom they do so in fact.'

Collins v. Shaffer, 66 Colo, 84, 179 P. 152, 153, was an action on a note by the payee against the maker where a written agreement was executed contemporaneously with the note and which stated that the note was in payment in full for a one-fourth interest in a certain patent. The court considered the two instruments as forming one contract. The defense of total failure of consideration was pleaded in the answer to the complaint and the maker attempted to prove this defense by parol evidence. The court there said: 'The consideration sought to be proved by the defendant by his parol evidence was wholly different from that described in Exhibit C [the contemporaneous agreement]. Such evidence does not come within any of the exceptions to the rule that parol evidence is inadmissible to vary the terms of a written instrument, and the court committed no error in disregarding the same.'

The case of Spells v. Swift & Co., supra, was an action upon a note which contained the following recital: 'The consideration of this note is the above-mentioned commercial fertilizer sold to me by Swift & Co., which I hereby acknowledge have been accepted, and received with the express understanding that there is no warranty whatsoever.' In holding that it was error to allow the defendant to impeach such recital, the opinion states: 'The consideration of a note can always be inquired into. Civil Code 1910, § 4250. But if the consideration be embraced in the terms of the notes, so as to constitute a part of the agreement knowingly entered upon, it cannot be disputed or denied that the promise as made was based upon the consideration thus expressed.'

A similar rule applies to written instruments other than promissory notes. In Burk v. Walton, 337 Mo. 781, 789, 86 S.W.2d 92, 96, the court said: 'While recitals in a written instrument as to the consideration therefor amounting to statements of fact, and not rising to the status of being contractual in their nature, are subject to contradiction [citations], extrinsic evidence, in the absence of fraud, accident, or mistake, is not competent to vary or contradict provisions of a contractual nature set forth therein where the...