Grebe v. Swords

• Decision Date: 01 October 1914
• Citation: 149 N.W. 126,28 N.D. 330
• Parties: GREBE v. SWORDS (two cases).
• Court: North Dakota Supreme Court

28 N.D. 330

149 N.W. 126

GREBE

v.SWORDS (two cases).

Supreme Court of North Dakota.

Oct. 1, 1914.

Syllabus by the Court.

Action to cancel and satisfy of record certain mortgages upon the ground of failure of consideration for the notes secured thereby. Such instruments were executed and delivered by plaintiffs to one A. H. Jones, who, prior to their maturity and for full value, sold and indorsed them to the First National Bank of Rugby, of which he was at the time its cashier. The receiver of such bank defends upon the alleged grounds: (1) That there was not a failure of consideration; (2) that the bank acquired such paper in due course; and (3) that plaintiffs are estopped, as against the receiver, from urging any infirmity in the notes. Upon a trial de novo in this court, the findings and conclusions of the trial court, favorable to plaintiffs on all issues, are sustained.

The contention that Jones acquired title to the land involved through one Henry Grebe, the former owner, who gave him a warranty deed, and that he subsequently sold the land to the plaintiffs, taking the notes in controversy in payment of the purchase price, is held without support in the proof. While such deed was given by Henry Grebe to Jones, and a written agreement in form entered into between them purporting to fix the terms and mode of payment of the purchase price, the undisputed testimony discloses that no sale was contemplated; the intention being merely to transfer such title to Jones in trust, with the understanding that he should deed the same to the plaintiffs, who are brothers of Henry Grebe, which trust Jones thereafter executed by giving deeds of the land to the plaintiffs, and the undisputed testimony is to the effect that the notes and mortgages executed and delivered by them to Jones were intended merely as security and indemnity to Jones against loss for furnishing certain bail bonds and agreeing to make certain advancements in connection with criminal proceedings pending or about to be commenced against Henry Grebe.

Parol evidence was admissible to show the real nature of the transaction between Jones and the Grebes. The rule excluding parol evidence does not apply where it is offered, not for the purpose of contradicting or varying the effect of a written contract of admitted authority, but to disprove the legal existence or rebut the operation of the instrument, and in order to determine the validity of the writing the true character of the transaction may always be shown.

The notes and mortgages were not given in consideration of Jones' promise to furnish bail and make advancements for Henry Grebe, but rather to secure and indemnify him against any future contingent loss or liability growing out of these matters; and, no such loss or liability having occurred, the consideration failed.

Under the facts it was a breach of faith amounting to fraud upon Jones' part to negotiate this paper to the bank. This being true, his title thereto was defective under the express provisions of section 6357, R. C. 1905; and under section 6361, R. C., the burden shifted to defendant to prove that the bank acquired title to the notes in due course.

In negotiating the paper Jones acted in a dual capacity. As an individual he sold the paper, and as cashier of the bank he purchased it. His knowledge of the infirmity in his title was therefore imputed to the bank. Emerado Farmers' Elevator Co. v. Bank, 20 N. D. 270, 127 N. W. 522, 29 L. R. A. (N. S.) 567, cited and followed.

Appellant's contentions that plaintiff's acts in renewing the paper to the bank, and in permitting it to remain as an asset of such bank until a receiver was appointed, should operate to estop them from urging any infirmity in such paper, are held without merit.

Appeal from District Court, Pierce County; A. G. Burr, Judge.

Two actions-one by Louis Grebe, and the other by John Grebe-against George W. Swords, as receiver of the First National Bank of Rugby. From judgment for each plaintiff, defendant appeals. Affirmed.

The record on this appeal presents two distinct suits, one by John Grebe and the other by Louis Grebe, as plaintiffs, against George W. Swords, as receiver of the First National Bank of Rugby, N. D. These actions were brought to cancel and satisfy of record certain mortgages executed by the Grebes upon the lands described in their respective complaints, upon the ground of a failure of consideration of the mortgages and the notes secured thereby. By stipulation the two actions were tried together, with the understanding that separate judgments should be entered. At the conclusion of the trial in the district court, findings of fact and conclusions of law favorable to the plaintiff in each case were made, and separate judgments entered granting the relief prayed for in the complaints, from which judgments these appeals are prosecuted; the appellant demanding a trial de novo of the entire case in this court, and, by stipulation of counsel, the two causes, which involve the same facts and legal questions, may be tried anew in this court as one case, but with the understanding that separate judgments shall be entered in each action.

The salient facts are not in dispute, and they are narrated in appellant's brief, in substance as follows: On July 7, 1907, one Henry Grebe was arrested in Pierce county on a criminal charge, and a few days later was rearrested on a charge of conspiracy. He had difficulty in obtaining bonds in both cases, and began negotiations with one A. H. Jones, then cashier of the First National Bank of Rugby, N. D., to procure the necessary bonds for his release, which negotiations resulted in their signing a written instrument, “Exhibit 1,” as follows:

“This agreement, made and entered into on this 19th day of July, A. D. 1907, by and between A. H. Jones, party of the first part, and Henry Grebe, party of the second part, witnesseth: Whereas, Henry Grebe, party of the second part, has on this day sold to A. H. Jones, party of the first part, certain lands in Pierce county, N. D., more particularly described in that certain warranty deed executed by me upon this 19th day of July, A. D. 1907, for the sum of $5,100, it is hereby agreed that the payment for the same shall be made as follows, to wit: (1) That the said A. H. Jones shall deduct from said purchase price of $5,100 whatever sums as attorney's fees or expenses he shall pay or cause to be paid on my behalf for my defense in any criminal action that is now started or shall hereafter be started against me. (2) That said A. H. Jones shall deduct from the said purchase price the amount of any bonds that he may sign for me in connection with said criminal actions. (3) That said A. H. Jones shall, after deducting said amounts heretofore described, execute a promissory note payable to the said Henry Grebe for the balance of said purchase price, payable November 1, 1908, drawing interest at the rate of 7 per cent. per annum. It is further agreed that at any time that said A. H. Jones is released from said bonds heretofore mentioned that he shall pay to said party of the second part whatever he has deducted by reason thereof, except that he is not required to pay the same before November 1, 1908. Said A. H. Jones to use his best judgment concerning expenses and hiring of attorneys for as heretofore mentioned. A. H. Jones.

Henry Grebe.”

At the same time Henry Grebe deeded to Jones all of his real estate, consisting of the N. E. 1/4 of section 15, and the S. W. 1/4 of the N. E. 1/4, the N. W. 1/4 of the S. E. 1/4, the S. 1/2 of the S. E. 1/4 of section 11, all in township 156, range 73; also the S. 1/2 of the N. W. 1/4, the N. 1/2 of the S. W. 1/4 of section 11, township 155, range 73, which deed was filed for record and duly recorded on said date in the office of the register of deeds of Pierce county. Thereafter, and on August 8, 1907, Jones deeded to the plaintiff, Louis Grebe, brother of Henry Grebe, certain of the lands above described and Louis Grebe executed and delivered to Jones two promissory notes, one for the sum of $2,500 and the other for the sum of $1,500, which notes were secured by a mortgage on one of such quarter sections of land thus conveyed by Jones to Louis Grebe, and also upon another quarter owned by Louis Grebe and which constituted his homestead. A chattel mortgage of all the crops raised on this land was also executed and delivered to Jones by Louis Grebe. The mortgage upon the real estate was given to secure, not only the note for $2,500, but also a $1,500 note, which was transferred by Jones to the Barton State Bank, which latter note is in no way involved in this action.

On the same date of the above transactions with Louis Grebe, Jones conveyed the remainder of the land, which had been deeded to him by Henry Grebe, to the plaintiff John Grebe, and at the same time John Grebe and wife executed and delivered to Jones their promissory note for the sum of $2,600, and a mortgage securing payment of the same; also a mortgage upon the crops to be raised on the land mortgaged. Two days later, and before maturity, the $2,500 note executed by Louis Grebe was indorsed and transferred by Jones to the First National Bank of Rugby, and Jones received credit therefor on the books of the bank, and subsequently checked out and used the money. In the following January this $2,500 note was renewed by Louis Grebe giving to the First National Bank a new note for $2,614.65. On the same date of such renewal by Louis Grebe the $2,600 note given by John Grebe and wife to Jones was renewed by giving a new note for the balance then due, amounting to $955.30, together with a mortgage securing payment of the same. This $2,600 note had not been transferred to the bank and no part of the same had been among the assets of the bank, until January 27, 1908, the date such renewal note was executed; but such renewal note for $955.30 was made directly to the bank and placed...