Hull v. Angus

• Decision Date: 17 October 1911
• Parties: HULL et al. v. ANGUS et al.
• Court: Oregon Supreme Court

118 P. 284

60 Or. 95

HULL et al. v. ANGUS et al.

Supreme Court of Oregon

October 17, 1911

Appeal from Circuit Court, Hood River County; W.L. Bradshaw, Judge.

Action by William Hull and others against F.W. Angus and another. Judgment for plaintiffs on overruling a demurrer to the complaint, and defendants appeal. Reversed.

The substance of the complaint in this suit is that, on November 21, 1907, the defendant Angus conveyed certain real property to the plaintiffs for the purchase price of $16,300. Of this $7,000 was paid in cash, and for $1,800 thereof the plaintiffs gave their note and mortgage securing the same the validity of which is not now in dispute. For the remaining $7,500 they gave their note, in words and figures as follows: "$7,500.00. Portland, Oregon, Nov. 21, 1907. Ten years after date, I promise to pay to the order of F.W Angus, seven thousand five hundred dollars, for value received, with interest from date, payable annually, at the rate of seven per cent. per annum until paid, principal and interest payable in U.S. gold coin at the First National Bank, Hood River, Oregon; and in case suit or action is instituted to collect this note, or any part thereof, I promise to pay such additional sum of money as the court may adjudge reasonable as attorneys' fees in said suit or action. This note is given as a part of the purchase price of real property and is secured by mortgage of even date herewith, and is subject to all the terms and conditions of said mortgage. This note may be paid at any interest paying date." For the purpose of securing this note, the plaintiffs gave their mortgage upon the real property, which by its terms was made junior to the mortgage for $1,800. The junior mortgage contains the following clause: "An agreement contemporaneous with this mortgage and note has been entered into between the mortgagors and the mortgagee whereby it is provided that if the mortgagors shall, within one year from the date hereof, tender to the mortgagee a written option to purchase from the mortgagors herein the premises herein described, for the sum of twenty-four thousand dollars cash in hand, the mortgagors will accept the note hereby secured as a part of said cash payment to the amount of said note, principal, and interest accrued; but if the mortgagee shall fail to accept said option and complete the purchase of said premises from the mortgagors within thirty days after the expiration of one year from the date hereof, then as liquidated damages for the failure of the mortgagee to take up said option and purchase said property from the mortgagors, the note hereby secured shall become and be null and void, and shall forthwith be canceled and surrendered by the mortgagee to the mortgagors, and this mortgage shall at once be released of record by the mortgagee. Said agreement is hereby referred to and expressly made a condition of this mortgage." The agreement referred to was executed by the defendant Angus, as party of the first part, and the plaintiffs herein, as parties of the second part.

This agreement, after reciting the conveyance of the land and the execution of the two mortgages already mentioned, proceeds thus: "Whereas, first party has represented to said second parties that said premises will be worth the sum of $24,000.00 one year from the date of sale thereof to second parties, provided second parties shall expend the sum of $1,500.00 thereon in clearing same, under the supervision and direction of first party, without further cost or expense to second parties; said sum of fifteen hundred ($1,500.00) dollars to be paid by parties of the second part upon the completion of work; and whereas, second parties have relied upon such representations as true and a valuable consideration moving to them in said transaction above mentioned: Now, therefore, the party of the first part does hereby agree with the parties of the second part, that upon the performance of all the conditions imposed upon second parties by this agreement, he will purchase, or cause to be purchased from second parties, the above described lands at the agreed price of $24,000.00 cash in hand within thirty days from the expiration of one year from the date of sale of said premises to second parties, upon second parties giving first party thirty days' notice in writing of their desire to sell under the terms of this agreement; and in the event of first party making default in the payment to second parties of the agreed purchase price of $24,000.00 as above provided, then as liquidated damages for the failure of party of the first part to repurchase said premises from the parties of the second part as above provided, the mortgage given by parties of the second part to party of the first part to secure their promissory note for $7,500.00, shall together with the debt secured thereby, become immediately null and void, and first party shall forthwith cancel said note and release said mortgage of record; and it is expressly understood and agreed that first party, in case of his default as above provided, shall accept said payment of $8,800.00 as the full purchase price of said premises. The mortgage of even date herewith for $7,500.00 together with the note secured thereby, given by second parties to first party to insure the payment of that portion of the unpaid purchase price of said premises, are hereby referred to and made conditional upon this agreement."

At the time of the execution of the note and mortgages, the defendant Angus addressed a letter to the plaintiff W. Hull to the effect that the notice clause in the agreement mentioned shall be interpreted to mean that the notice mailed and registered to the defendant Angus, at Hood River, Or., should fulfill the agreement on the part of the plaintiff as regards such notice. The conveyance and all the other writings mentioned were executed contemporaneously and as part of the same transaction, and the mortgage in question was duly recorded in the mortgage records of Wasco county. The plaintiff furnished to the defendant Angus the sum of $1,500 mentioned in the agreement, to be expended on the property under the direction of Angus, and he expended it under his own supervision and direction as he deemed best and proper.

The allegation respecting notice to the defendant Angus is here quoted in full: "That, in pursuance of the terms and conditions of the agreement and the note and mortgage hereinbefore described and set forth, these plaintiffs did, on the 29th day of September, 1908, and again on the 21st day of October, 1908, cause notice in writing to be prepared, issued, and signed by these plaintiffs calling upon defendant F.W. Angus to purchase or cause to be purchased the said property from them, as provided in said written agreement and in said mortgage, within thirty (30) days after the 21st day of November, 1908, and offering on the part of them, the said plaintiffs, to perform and carry out all the obligations imposed upon them, the said plaintiffs, by the terms and conditions of said agreement and mortgage." It is alleged that Angus failed and refused to buy the property at $24,000. It is also claimed that Ferguson, pretending to own the $7,500 note, has commenced an action at law to collect $520 claimed to be due as interest. The complaint also alleges that Ferguson had notice of all the conditions contained in the note and mortgage, and if he bought at all he paid nothing for the same, but took with the fraudulent purpose of defeating plaintiffs in their rights to have the same canceled. The defendants are alleged to be insolvent. A general demurrer to the complaint was overruled. The defendants stood on their demurrer, the court entered a decree canceling the note and mortgage for $7,500, and the defendants appeal.

A.J. Derby and Ernest C. Smith, for appellants.

Moulton & Scobey and E.C. Bronaugh, for respondents.

BURNETT, J. (after stating the facts as above).

There are three questions presented by this record: First. Is the note in question negotiable, so as to prevent plaintiffs from urging its cancellation as against the defendant Ferguson; or, in other words, is his title to the note such as to render him immune against the attacks made upon that title by the complaint? Second. Do the stipulations for the surrender and cancellation of the note and mortgage in question, as set forth in those instruments and the accompanying contract, constitute an agreement for liquidated damages or for a penalty? Third. Is the allegation of the complaint about notice to the defendant Angus sufficient to charge him with knowledge of the purpose of plaintiffs to exercise their option to sell the land for $24,000? We will consider these questions in the order noted.

According to section 5834, L. O.L., an instrument to be negotiable must contain, among other things, an unconditional promise or order to pay a sum certain in money. The note in question bears upon its face a condition in these words: "This note is given as a part of the purchase price of real property, and is secured by mortgage of even date herewith and is subject to all the terms and conditions of said mortgage." It would be doing violence to the language to say that the note is unconditional, when it expressly says upon its face that it is subject to conditions. The reference to the mortgage by the terms of the note is in effect making the note and mortgage one instrument, with the conditions rendering the note nonnegotiable. Bradstreet v. Rich, 74 Me. 303; In re Commissioners of Washington Park, 52 N.Y. 131; Casey v. Holmes, 10 Ala. 776. Taken in connection with the reference to its accompanying mortgage, making them in effect one instrument, as these authorities teach, the note amounts to a declaration by the...