Continental Guaranty Corporation v. Peoples Bus Line.

• Decision Date: 30 March 1922
• Citation: 117 A. 275,31 Del. 595
• Court: Delaware Superior Court
• Parties: CONTINENTAL GUARANTY CORPORATION, a corporation of the State of New York, v. PEOPLES BUS LINE., ET AL

117 A. 275

31 Del. 595

CONTINENTAL GUARANTY CORPORATION, a corporation of the State of New York, v. PEOPLES BUS LINE., ET AL

Superior Court of Delaware, New Castle County

March 30, 1922

Superior Court for New Castle County, January Term, 1922.

CASE stated, No. 18, September Term, 1921.

Actions by Continental Guaranty Corporation, a corporation of the State of New York, against People's Bus Line, Inc., et al., in seven cases; the first, a repelvin suit, the remaining six, against indorsers of promissory notes which accompanied the contract for the purchase of motor vehicles in question.

The cases were all heard together on an agreed statement of facts. A brief summary of the facts is as follows: That at certain specified times in December, 1919, March, 1920, and May, 1920, the People's Bus Line entered into seven written contracts for the purchase of seven motor vehicles from the Delaware Motor Tansportation Company; that each of the contracts by its terms provided that the purchaser should give to the seller a promissory note as evidence of the amount due on the installments to be paid under the contract. The six individual defendants were the indorsers on the notes, Richard F. Cross, one of the individual defendants having indorsed two of said notes, all of the indorsements having been made prior to the delivery thereof; that prior to the maturity of the said notes all of the contracts were assigned by indorsements on the back thereof, and all of the notes indorsed by the Delaware Motor Transportation Company to the Continental Guaranty Corporation, the plaintiff in these suits. Default having been made in the payments prescribed in said contracts and in said notes, a writ of replevin was sued out on May 18, 1921, by the Continental Guaranty Corporation against the People's Bus Line, Inc. Under this writ, the sheriff replevined and delivered five of the motor vehicles and a motor bus body, being a portion of one of the remaining vehicles. The seventh motor bus was not recovered in the replevin suit. After the delivery of the chattels by the sheriff under the replevin process, the present plaintiff retained them more than ten days, and the People's Bus Line not having redeemed them, the plaintiff sold them at public auction, after giving the notices prescribed in sections 19 and 20 of chapter 192, vol. 30 Laws of Delaware, known as the Uniform Conditional Sales Act the buyer not having at the time of the default paid 50 per cent. of the purchase price. The entire amounts obtained for the chattels on this resale was applied on account of the balances due under the respective contracts and notes.

Judgments entered in favor of Continental Guaranty Corporation, the plaintiff, and against the defendants.

Herbert H. Ward, Sr., and Frank L. Speakman for plaintiff.

David J. Reinhardt and P. Warren Green for defendants.

PENNEWILL C. J., RICHARDS AND RODNEY, J. J., sitting.

OPINION

RODNEY, J.

Three important questions are presented to and urged upon this court:

1. Are the notes sued upon in this action negotiable instruments within the meaning of the laws of this state and particularly of the Uniform Negotiable Instruments Act so as to allow suits thereon in the name of the endorsee of the said notes?

2. Has the present plaintiff by an election of inconsistent remedies, namely, the recovery of the motor vehicles by replevin process, estopped itself from a recovery on the notes from the indorsers thereof, even for the deficiency shown after crediting the proceeds of the resale of the chattels to the amounts shown to be due upon the notes?

3. Can these suits be maintained by the present plaintiff which is the assignee of the contracts and the assignee or indorsee of the notes mentioned in the agreed statement of facts, under section 2627 of the Revised Code of 1915, the assignments not being under seal and not being made in the presence of a witness, even if aided by chapter 228, vol. 30, Laws of Delaware?

This arrangement of the questions involved has been selected because it is admitted by the defendants that if it is determined that the notes sued upon are negotiable, that in that case the statutes of this state make it proper to bring the suit in the name of the present plaintiff, and since this court is of the opinion that the notes involved in this suit are negotiable, such determination makes the consideration of the second question unnecessary in respect to the suits on the notes.

Each of the notes sued upon in this action is for a definite sum payable by installments, a schedule of the times and amounts of the payments being set out on the face of the notes; each note is under seal, and each provides that upon the failure to pay any installment when the same falls due that the entire amount shall become due and payable forthwith at the election of the holder of the note and contains a warrant of attorney for the entry of judgment; each note also bears the following memorandum printed on the face of the note:

"This note is given covering deferred installments under conditional sale contract for a motor vehicle."

It is insisted that these facts and especially the memorandum printed on said note make the notes and contracts together the agreement of the parties and that the notes in themselves are not negotiable.

The Uniform Negotiable Instruments Act as published in the Revised Code of 1915 (sections 2645-2842) furnishes in itself a sufficient answer to many of the suggestions made. Section 2646 provides that a sum payable is a sum certain within the meaning of the act, even though it is payable by installments coupled with a provision that upon default of any installment the whole shall become due.

Under section 2650 the negotiable character of the instrument is not affected by the fact that it bears a seal, nor under section 2649 by the fact that it authorizes a confession of judgment.

Section 2647 provides that--

"An unqualified order or promise is unconditional within the meaning of this chapter, although coupled with * * * (2) A Statement of the transaction which gives rise to the instrument."

It is contended that under this provision the words, "This note is given covering deferred installments under conditional sale contract for a motor vehicle," as found in the note, do not destroy its negotiability. The words quoted from the Uniform Negotiable Instruments Act were ably treated and the purpose of their inclusion set out in the Ames-Brewster discussion of the act found in the appendix to Brannan's Negotiable Instruments Act. They were copied almost verbatim from the English Bills of Exchange Act and it has been held that they were merely declaratory of the old law merchant. Strand Amusement Co. v. Fox, 205 Ala. 183, 87 So. 332, 14 A. L. R. 1121. Regardless of the origin of the section it is undoubtedly the law that the question as to whether a reference in an otherwise negotiable note to some extraneous writing or agreement renders the note non-negotiable is to be determined by the test of whether the reference subjects the note itself to the terms of the extraneous agreement or whether the words refer merely to the consideration or origin of the transaction. In the first case the negotiability is destroyed; in the second case it is preserved.

In 3 R. C. L. § 69, p. 883, it is said:

"It may be stated as the general rule that whenever a bill of exchange or promissory note contains a reference to some extrinsic contract in such a way as to make it subject to the terms of that contract as distinguished from a reference importing merely that the extrinsic agreement was the origin of the transaction, or constitutes the consideration of the bill or note, the negotiability of the paper is destroyed."

But the same work at section 112, p. 918, holds that:

"The negotiability of a note is not affected by a reference which is simply a recital of the consideration for which the paper was given, or a statement of the origin of the transaction or by a statement that it is given in accordance with the terms of a contract of even date between the same parties."

In determining whether or not a reference in a note to an extraneous writing renders the note nonnegotiable, the court is, of course, confined to its examination of the note itself and cannot look to the provisions of the extraneous writing for assistance. It is the negotiability of the note and not of the extraneous writing which is being determined. Waterbury-Wallace Co. v. Ivey, 99 Misc. 260, 163 N.Y.S. 719. See also, Kennedy v. Murdick, 5 Harr. 263; Bavarian Brewing Co. v. Retkowski (Del. Super.) 113 A. 903; Supra, p. 225.

In Waterbury-Wallace Co. v. Ivey, supra, the court held that the words "as per contract of Nov. 12, 1915," as found in the note, did not make the note nonnegotiable.

In Strand Amusement Co. v. Fox, 205 Ala. 183, 87 So. 332, 14 A. L. R. 1121, it was held that the words "as per contract" on the face of a promissory note did not destroy its negotiability.

In Doyle v. Considine, 195 Ill.App. 311, it was held that the negotiability of a note was not affected by a memorandum that "this note is given in accordance with a land contract of even date."

In Slaughter v. Bank of Bisbee (1916) 17 Ariz. 484, 154 P. 1040, a reference made in a note after the signature thereto that it was "for payment under contract of even date" is held not to render the note nonnegotiable.

It was held in National Bank of Newbury v. Wentworth, 218 Mass. 30, 105 N.E. 626, that the words "as per terms of contract" in a promissory note did not destroy the negotiability of the note or make its payment conditional upon the performance of the contract referred to although the court felt if the words had been "subject to the...