Culbreath v. Guiterman, Rosenfield & Co.

Decision Date05 May 1927
Docket Number4 Div. 279
Citation217 Ala. 259,115 So. 303
CourtAlabama Supreme Court

Rehearing Granted to Appellees Dec. 15, 1927

Rehearing Granted to Appellants Jan. 28, 1928

Appeal from Circuit court, Covington County; W.L. Parks, Judge.

Action by Edward L. Rosenfield and others, doing business as Guiterman, Rosenfield & Co., against D.R. Culbreath and another. From a judgment for plaintiffs, defendants appeal. Reversed and remanded.

Powell & Albritton, of Andalusia, for appellants.

Baldwin & Murphy, of Andalusia, for appellees.


The suit is on a series of promissory notes--by the indorsees against the makers.

The question of first moment is their negotiability vel non.

The form of the note is as follows:

"Purchase-Money Note.

Dated June 15, 1921.

"On September 1st, after date we promise to pay to the order of the Southern Pine Tar & Oil Company, Savannah, Ga the sum of fifteen hundred and no/100 dollars, with interest from date at the rate of 8 per cent. per annum, and all costs of collection, including 10 per cent. attorney's fees, at any bank in Savannah, Ga.
"This note is one of series of notes given Southern Pine Tar & Oil Company covering balance of purchase price of retort plant as per contract between that corporation and the maker hereof, dated May 16, 1921."
Signed by makers.

By the written contract of May 16, 1921, the payee, with offices at Savannah, Ga., agreed to sell and the makers agreed to buy two portable retorts with equipments for the manufacture of pine oils, tar, and charcoal, the plant to be located at Rome, Ala.

The seller agreed to allow the use of its methods and processes of manufacture, and to teach the buyers how to operate. All the products of the plant were to be marketed through the seller's agency on a commission basis.

Another provision reads:

"Party of the second part to operate on full time, but if from any unforeseen cause the party of the second part is unable to so operate plant, the party of the first part agrees to renew above-mentioned notes for such reasonable time as may be agreed to."

As between the parties, the several instruments clearly constituted one contract.

The stipulation for renewal as per the above-quoted clause, if incorporated in the note, would destroy negotiability. The right of renewal on a contingency that may or may not happen necessarily renders the time of payment uncertain. A stipulation giving a general right of renewal for an indefinite time has the same effect. Code, § 9032; Anniston Loan & Trust Co. v. Stickney, 108 Ala. 146, 19 So. 63, 31 L.R.A. 234; 3 R.C.L. p. 910, § 98.

The mere fact that a promissory note, possessing all the elements of negotiability as defined by law, is related to another instrument in such way that, in the contemplation of the parties, both constitute one contract does not affect the negotiability of the note. Its face is its passport. However, it is not necessary that the terms of the related contract appear on the face of the note. If there is such reference in the note as imports to the ordinary holder that the note is subject to the terms of the contract, that they are related as parts of a whole, that the obligation of the maker is to be gathered from the entire contract, the note is not negotiable when the contract shows conditions. But "a statement of the transaction which gives rise to the instrument" does not render the note conditional and nonnegotiable. Code, § 9031.

In Strand Amusement Co. v. Fox, 205 Ala. 183, 87 So. 332, 14 A.L.R. 1121, this court reviewed the authorities and laid down the governing rules of construction. See, also, extended note to that case. 14 A.L.R. pp. 1126-1133; Verner v. White, 214 Ala. 550, 108 So. 369; Sacred Heart Church v. Manson, 203 Ala. 256, 82 So. 498; People's Bank v. Moore, 201 Ala. 411, 78 So. 789.

The difficulty arises in making application of these rules to the terms of the reference clause as expressive of the intent of the parties.

The reference clause in the note above quoted shows it was given for part purchase price of named property. Thus far, it is a statement of the transaction out of which it arose, and does not imply the note is subject to the terms of another contract.

But is this all? The clause as a whole is full and explicit, appears in the body of the note following the promise to pay. It clearly imports that the retort plant was purchased as per contract, naming the parties and the date, and that the notes are given as per contract of purchase.

We think the instrument as a whole discloses to the ordinary business man that the note is subject to the terms of the contract thus carefully identified.

It follows the notes sued upon were nonnegotiable, and open to the defense of failure of consideration. The court erred in refusing evidence that the retorts purchased were never delivered.

Reversed and remanded.

ANDERSON, C.J., and THOMAS and BROWN, JJ., concur.

SAYRE, J., not sitting.

ANDERSON, C.J., holds that Strand Amusement Co. v. Fox, supra, should be modified or overruled rather than attempt to differentiate that case from the present.

GARDNER, J., dissents.

SOMERVILLE J. (dissenting).

I am unable to concur in the decision of the majority in this case because, notwithstanding its attempted differentiation from the case of Strand Amusement Co. v. Fox, 205 Ala. 183, 87 So. 332, 14 A.L.R. 1121, I think it destroys the principle of the Fox Case, and is in fact opposed to the unanimous views of all of the American courts that have dealt with this specific question.

That principle is that the statement on the face of a note, if otherwise negotiable in form, that it is given "as per contract," does not impair its negotiable quality.

With respect to this identical phrase, even where it occurs in the body of the note, the following cases are in accord with the Fox Case: Nat. Bk. of Newberry v. Wentworth, 218 Mass. 30, 105 N.E. 626; Waterbury-Wallace Co. v. Ivey, 99 Misc.Rep. 260, 163 N.Y.S. 719; Tyler v. Whitney-C. Tr. & Sav. Co., 157 La. 249, 102 So. 325; Snelling State Bank v. Clasen, 132 Minn. 404, 157 N.W. 643, 6 A.L.R. 1663; First Nat. Bank v. Badham, 86 S.C. 170, 68 S.E. 536, 138 Am.St.Rep. 1043; Internat. Finance Corporation v. N.W. Drug Co. (D.C.) 282 F. 920. And to these may be added Jury v. Barker, 4 Jur.N.S. 587, 120 Eng. Reprint, 580, by Lord Campbell, C.J.

The Louisiana court apparently limits the noneffect of this phrase on negotiability to cases where it appears in a sentence distinct from the sentence containing the promise to pay--a limitation not found in any other decision.

In the Fox Case we interpreted the phrase "as per" as meaning "in accordance with, or pursuant to." The following cases hold that a statement on the face of the note that it is given "in accordance with the terms" of a certain contract does not impair negotiability: Markey v. Corey, 108 Mich. 184, 66 N.W. 493, 36 L.R.A. 117, 62 Am.St.Rep. 698; Continental Guaranty Co. v. People's Bus Line, 1 W.W.Harr. (Del.) 595, 117 A. 275; Doyle v. Considine, 195 Ill.App. 311. And in Old Colony Co. v. Stumpel, 126 Misc.Rep. 375, 213 N.Y.S. 536, it was held that the statement that the note was "given covering deferred installments under conditional sale contract for a motor vehicle" did not impair negotiability. This overwhelming array of authorities, speaking with a single voice, is ignored by the majority opinion.

That opinion conceives that the instant case can be distinguished from the Fox Case in two particulars: (1) That the reference clause is here found in the body of the note; and (2) that it states not only the fact, but also some the subject-matter, of the contract.

It must be observed that the promise to pay--the entire essential part of the note--is a separate and complete sentence and paragraph. The reference clause, a separate paragraph also, states that:

"This note is one of series of notes given [the payee] *** covering balance of purchase price of retort plant as per contract between that corporation and the maker hereof dated May 16, 1921."

I am unable to see how it can be even plausibly contended that the words "as per," an adverbial phrase, can be referred to anything else than the giving of the note, or the covering; that is, taking care of, the balance of the purchase price. Certainly, it means, because it declares, that the note "is given *** as per contract," or is "covering the *** purchase money as per contract." And to say that "as per" does not relate to either of its immediate antecedents, "covering" or "given," but, on the contrary, reaches back into the preceding paragraph and qualifies the promise to pay, is, to my mind, an impossible theory, which violates common understanding and every principle of grammatical construction.

The Negotiable Instruments Law (Code 1923, § 9031) declares that:

The "promise to pay is unconditional *** though coupled with: *** A statement of the transaction which gives rise to the instrument."

There is nothing in this that limits the fullness of the statement. Manifestly, it may include the substance of the entire transaction, without affecting negotiability, provided always that the "statement" itself does not show that the promise to pay is conditional. It is the quality, not the quantity, of the statement that counts; and, of course, the qualification of the promise to pay must appear from the terms of the contract as stated, and not as an implication of law grounded upon the payee's contingent breach of the contract.

Here then, we have a reference to the contract, a statement of the transaction which caused the giving of the note. Three things are shown: (1) That the note is one of a...

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