Farm Investment Company v. Wyoming College and Normal School

• Citation: 10 Wyo. 240,68 P. 561
• Parties: FARM INVESTMENT COMPANY v. WYOMING COLLEGE AND NORMAL SCHOOL, ET AL. WYOMING COLLEGE AND NORMAL SCHOOL v. FARM INVESTMENT COMPANY, ET AL
• Decision Date: 15 April 1902
• Court: United States State Supreme Court of Wyoming

68 P. 561

10 Wyo. 240

FARM INVESTMENT COMPANY v. WYOMING COLLEGE AND NORMAL SCHOOL, ET AL.

WYOMING COLLEGE AND NORMAL SCHOOL v. FARM INVESTMENT COMPANY, ET AL

Supreme Court of Wyoming

April 15, 1902

ERROR to the District Court, Sheridan County, HON. JOSEPH L STOTTS, Judge.

This was an action on a note and for the foreclosure of a trust deed securing the note, brought by the Farm Investment Company against the Wyoming College and Normal School. The defendant sought credit for several notes alleged to have been delivered to plaintiff as collateral security, some of which had been collected, others had been barred by the statute of limitations, and others were still in the possession of the plaintiff, uncollected. The issue arose out of these collateral notes, and the liability of the plaintiff in consequence of its alleged negligence in failing to collect and in failing to account. The trial court made a separate statement of conclusions of fact and law. These and the facts are set forth in the opinion. Both parties bring the case to this court alleging error.

Judgment modified and affirmed.

James W. McCreery and W. E. Mullen, for the Farm Investment Company.

The errors in fact and in law involved in this record are so intimately connected, the matters of law depending so much upon the evidence introduced, that they can best, and perhaps only, be intelligently discussed together; and we can probably better present our views upon this case and the law applicable thereto by grouping our arguments under two or three general heads or propositions than by pursuing our inquiry in regard to each one of the findings separately.

The court found that all of the 201 notes assigned as collateral security were good and collectible at the maturity thereof respectively, and in effect charges amounts of said notes against the principal note at the time of the maturity, and ignoring the fact that most of the proceeds of the collateral notes collected had when received by plaintiff been applied to the payment on interest on the principal loan. This was wholly erroneous, for several reasons. It is affirmatively shown by both the documentary and oral testimony that the defendant itself, its trustees, agents and attorneys retained the custody of the notes and assumed the collection thereof, the plaintiff coming in contact only with the matter when remittances were made to it. It was also shown without controversy or contradiction that all remittances received were immediately credited upon either the interest notes or the said principal note. It, therefore, follows that the collections made and remitted to plaintiff and by plaintiff faithfully accounted for, fully states the transaction and fully absolves the liability of plaintiff in the premises.

Moreover in making the computations and charges the court adopted the theory that whenever a collateral note becomes due it should thereupon be charged at its full face value, including interest upon the principal note, disregarding not only the accumulation of interest on that note, but disregarding also the fact that the principal note was only payable five years after February 1, 1893, and not otherwise, and also being indifferent to the further fact as to whether such collateral note then due was collected, or ever could be collected, and if so, how much might be collected thereon.

By this method of computation nine interest coupon notes, one for $ 168.88, and eight others for the sum of $ 157.50 each, which had become due semi-annually respectively, prior to the commencement of the suit, are wholly excluded from the computation, and if this method of computation be correct they are entirely lost to the plaintiff, it is not only whittling down the principal of the $ 4,500, but at the same time refusing the payment of any interest whatsoever. This theory seems to have been adopted by the court because only the principal note and the last coupon note were sued upon, but since the first nine coupon notes had been paid by remittances from the proceeds of some of the collateral notes collected, suit could only be brought upon the paper which was in whole or in part unpaid. Indeed, the whole scheme and theory of computation, credits and charges as applied between these collateral notes and the loan, together with the interest thereon which they were given to secure, is so offensive and contrary to all the rules of both law and commercial arithmetic that it needs no further consideration.

The principal indebtedness or principal note, as these terms are employed by the authorities, of course, include interest accruing thereon, and where interest becomes due from time to time, interest so accruing is payable from the proceeds of short time notes collected. Security given for the principal extends to and covers interest accruing. This is not only the general rule, but the express stipulation of the contract of assignment.

When short time negotiable notes are pledged as collateral security to a long time note, the rule is that the proceeds of the short notes collected are to be set aside as a substitute for the note itself, and held until some payment upon the indebtedness for which the security was given comes due before it can be applied, unless the parties otherwise agree. (Farwell v. Importers' & Traders' National Bank, 90 N. Y. App., 483; Strong v. Nat. Mechanics' Banking Assn., 45 N.Y. 720; Colebrook on C. S., (2nd Ed.), Sec. 93.)

We, therefore, maintain that under the evidence introduced and the legal evidence offered, but refused to be received by the court, the findings to which we have objected in the motion for new trial, and to which we here object, are, for the most part, not only contrary to the evidence, but without evidence or any evidence to support them; that the conclusions of law are not sustained by any well considered authorities on this subject, and that the accounting and computations given by Mr. Baker stand unchallenged and constitute the true accounting by which the rights of this plaintiff should be determined.

The fundamental error of the court both in fact and law was in holding that the plaintiff had been negligent in not realizing the full face value on all of the collateral notes assigned and in renewal of certain of the notes, and in charging the plaintiff with the face or arbitrary value thereof without regard to whether collected or not.

It is conceded by the pleadings and cross-complaint, as well as being averred, that the 201 notes for $ 25 each were assigned not absolutely, but as collateral security for the loan made by plaintiff to the defendant. The loan was evidenced by the note for $ 4,500 reciting in the principal note that the loan was to draw interest at the rate of 7 per cent. per annum, from the time of its execution until maturity, as evidenced by coupon notes thereto attached, and to draw 18 per cent. per annum after maturity. This note and the coupons attached were secured by deed of trust, executed in due form, conveying certain lands and improvements thereon as the principal security for said loan. All this the defendant concedes in its fourth defense.

The character, scope and limitations by which the assignment of the collateral notes in question was invested appears further from the action taken by the board of directors of the defendant on the 8th day of February, 1893, and by the assignment made in pursuance of said resolution on the 11th day of February, 1893.

The assignment and guaranty provided for was thereafter made in apparent accordance with said resolution.

And in further apparent accordance with the above recited transactions, agreements and stipulations, the collateral notes were in fact left with the First National Bank of Sheridan, Wyoming, for collection, and were never in fact otherwise delivered to the plaintiff, and were never in its manual possession after the making of said assignment.

In any case and where the pledgee has full possession and control of the collateral security, the duty and obligation of the pledgee in the collection thereof is performed by the exercise of reasonable and ordinary care and diligence. More than this is not required of the pledgee. If he acts in good faith the pledgor cannot complain. Only in case of fraud or gross negligence on the part of the pledgee will he be held to stricter account. (Coleb. on Coll. Sec. (2nd Ed.), Sec. 114, and cases cited.)

The burden of proof of payment of the debt, whether by collection of the collateral security or otherwise, is cast upon the defendant. It is incumbent upon him both to allege and prove that defense if he desires to make it. (Coleb. on Coll. Sec. (2nd Ed.), Sec. 114, note k, and cases cited; Manuf. Co. v. Falvey, 20 Wis. 211.)

The pleading is insufficient to sustain proof of negligence and loss, but, aside from this, no proof was offered to sustain these averments save the bare fact that the collateral notes or some of them had not been collected or accounted for. There is no proof of the value of the notes or solvency of the makers; there is no proof of want of diligence, or the refusal to do or perform any act that might have been done to enforce the collection of the notes on the part of the plaintiff or on the part of the persons having the actual charge and custody of these collaterals. The only proof on the subject, and this is totally inadequate for the purpose of showing negligence on the part of plaintiff, is that certain persons, including four of the active trustees of defendant, who at the same time were guarantors both of the collection and payment of all the collateral notes, failed, neglected and refused to pay their own notes, either as makers or guarantors of the same.

In all such cases the burden of proof is on...