Cornish v. Woolverton

• Decision Date: 03 June 1905
• Citation: 81 P. 4,32 Mont. 456
• Parties: CORNISH v. WOOLVERTON et al.
• Court: Montana Supreme Court

81 P. 4

32 Mont. 456

CORNISH v. WOOLVERTON et al.

Supreme Court of Montana

June 3, 1905

Appeal from District Court, Gallatin County; Frank Henry, Judge.

Action by William Cornish against William W. Woolverton and others. From a judgment for plaintiff, defendants appeal. Affirmed.

Bolinger & Stewart and Hartman & Hartman, for appellants.

John A Luce, for appellee.

BRANTLY C.J.

Action to foreclose a mortgage executed on August 1, 1895, to secure a promissory note for borrowed money, by the defendants William W. Woolverton and his wife, Joanna Woolverton, to the Bunnell & Eno Investment Company, a New Jersey corporation (hereinafter referred to as "the company"). The plaintiff sues as the purchaser for value of the mortgage and note prior to maturity, evidenced by written assignment to him by the company, duly acknowledged, and recorded in Gallatin county on September 28, 1895. The complaint is in the ordinary form, alleging a breach of the contract by a failure to pay the note according to its terms, and asks for a decree of sale of the mortgaged property for the satisfaction of the indebtedness, with interest and costs including attorney's fees. Copies of the mortgage and note are attached. The following is a copy of the note:

"On the first day of August A. D. 1900, for value received I promise to pay to the order of The Bunnell and Eno Investment Company, the principal sum of Fifteen Hundred Dollars, with interest thereon at the rate of six per cent per annum from August 1, 1895, until maturity, payable semi-annually, according to the tenor of ten interest notes, each for Forty-five Dollars, bearing even date herewith and hereto attached, both principal and interest notes payable in gold coin of the United States of America of or equal to, the present standard of weight and fineness at the Merchants National Bank in Helena, Montana. This note and these coupons are to draw interest at the rate of twelve per cent per annum after maturity and are secured by mortgage of even date herewith, duly recorded in Gallatin county, of the State of Montana.

"Dated at Helena, State of Montana, on the first day of August, 1895."

The defendants answered, setting up four separate defenses. The first of these it will not be necessary to notice further than to observe that it contains a general plea of payment of the full amount of the note and interest, and a release of the mortgage of record by the company on or about February 26, 1900, and deraignment of title to the defendant Metheny from Woolverton and wife, through Kirk, by deeds of warranty.

The second defense alleges, in substance, that on February 25, 1897, the defendants William W. Woolverton and Joanna, his wife, conveyed the mortgaged property to defendant Ira L. Kirk; that he was at the time of his purchase informed of the incumbrance thereon in favor of the company, and agreed to assume and pay it off as a part of the purchase price; that up to the date of this sale the defendants Woolverton had paid to the company all the interest which had fallen due, and had received the coupons therefor from the company, properly canceled; that after his purchase defendant Kirk had paid to the company all the other installments falling due; that a short time before the principal of the note fell due the said Kirk paid it in full, with interest up to the date of maturity, and received from the company a written release and acknowledgment of satisfaction in full, duly acknowledged for record, and had the same recorded in the records of Gallatin county; that none of the defendants received notice that the plaintiff owned or claimed to own the note and mortgage until May 12, 1902, more than two years after the said principal had been discharged and canceled by his payment; and that the plaintiff should be held to be estopped to claim payment to him, because he failed and neglected to give notice of the assignment to him of the said note and mortgage.

The third defense, in addition to the foregoing, alleges further that the plaintiff never at any time gave notice to any of the defendants that he claimed to be the owner by assignment or other right of the note and mortgage until May 12, 1902, more than two years after the note had been fully paid to the company and its satisfaction of the mortgage entered of record in Gallatin county; that the plaintiff, by his acts and conduct in permitting the company to collect the interest coupons from time to time, had held it out to the defendants as his agent to collect the note and cancel the mortgage, and that for this reason the said company had authority to collect the note and enter the satisfaction of the mortgage, and that by reason of his silence and omission and failure to notify defendants that the company did not have authority to collect the indebtedness, and by reason of the conduct of the plaintiff in holding out to the defendants that the company did have authority to collect and receive payment of the same, the plaintiff cannot now be heard to say that the company did not have such authority, both to receive payment and discharge the mortgage.

The fourth defense alleges that the plaintiff never gave the defendants, or any of them, notice that he claimed to be the owner of the note or interest coupons or the mortgage until May 12, 1902, more than two years after the indebtedness had been paid and the mortgage had been released and canceled; that by his conduct in permitting the company to collect the interest coupons the plaintiff held it out to the defendants Woolverton and Kirk as his agent with authority to collect and discharge the debt, and that, relying upon its ostensible authority to receive payment, the said Kirk paid the full amount of the debt to it; that during all of the time from August 1, 1895, to August 1, 1900, and for about 20 months after the last mentioned date, the company was solvent and able to respond in damages; that on or about March 14, 1902, it was found to be insolvent, and a receiver was appointed to wind up its affairs; that the receiver has no assets out of which the defendants might have reimbursement for the moneys paid to the company in discharge of the indebtedness; that plaintiff did not notify the defendants of his purchase of the note and mortgage until the company had been found to be insolvent; that the defendants could and would have secured reimbursement for the payments to the company as aforesaid, or have obtained security therefor, had they received notice in a reasonable time that the company had no authority to receive the payments; and that by reason of plaintiff's negligence in failing to notify defendants of the fact that the company was not his agent in the premises plaintiff is now estopped to say that the company did not have authority to act for the plaintiff and to receive payments made to it in the discharge of said indebtedness and to discharge the mortgage.

To each of the defenses a general demurrer was interposed by the plaintiff. This, after argument, the court sustained, and, the defendants declining to plead further, a decree was entered granting the relief prayed for in the complaint. From this decree the defendants have appealed.

Counsel have confined their discussion in their briefs to the questions arising upon the action of the district court in sustaining a general demurrer to the last three defenses, it being assumed that the first defense, though good in form as a general plea of payment, would be supported on a hearing on the merits only by the facts specifically pleaded in the other defenses. Therefore the correctness of the view of the court as to the sufficiency of that defense is eliminated from the case, and it will not be necessary to consider its action in this connection. The questions presented for decision are: (1) Is the note in suit negotiable? (2) If not, did plaintiff take subject to the defense of payment made by the grantee of the Woolvertons prior to actual notice of the assignment? (3) Do the facts stated show an agency of the company to receive payment? And (4) is the plaintiff estopped to demand payment?

1. As to the negotiability of the note in suit. It will be noted that by its terms the principal sum named therein is to bear 6 per cent. interest, payable semiannually, the installments being evidenced by coupons, each for $45. There is added this clause: "This note and these coupons are to draw interest at the rate of 12 per cent. per annum after maturity, and are secured by a mortgage of even date herewith," etc. Does the latter clause render it nonnegotiable? Prior to the adoption of the present Code, which became operative on July 1, 1895, the common-law rule of interpretation under the law merchant was in force in this state, and it was accordingly held that a stipulation for the payment of an attorney's fee in a bill of exchange did not destroy its negotiability. This court followed the line of decisions which sustain both the validity of the stipulation and the negotiability of the instrument in Bank of Commerce v. Fuqua et al., 11 Mont. 285, 28 P. 291, 14 L. R. A. 588, 28 Am. St. Rep. 461. This holding was based upon the theory that the condition or stipulation for the payment of an attorney's fee could not and did not attach until after maturity, when the instrument, otherwise meeting the requirements of the law merchant as to definiteness and certainty in its terms, had ceased to be negotiable. The Code contains provisions, however, which obviously were designed to set at rest all doubts and uncertainties arising from conflicting decisions of courts under the common-law rule. These are found in sections 3990 to 3997 of the Civil Code. So far as pertinent to the present discussion, they are as follows:

"A

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