May v. Whitbeck

• Decision Date: 02 April 1941
• Docket Number: 8109.
• Parties: MAY v. WHITBECK.
• Court: Montana Supreme Court

113 P.2d 332

111 Mont. 568

MAY v. WHITBECK.

No. 8109.

Supreme Court of Montana

April 2, 1941

As Modified on Denial of Rehearing May 27, 1941.

Appeal from Sixteenth Judicial District Court, Custer County; S.D McKinnon, Judge.

Action by Lena C. May, as administratrix of the estate of Joseph H. May, deceased, against Ed Whitbeck, who is the same person as Edwin Whitbeck, on promissory note. From a judgment for defendant, plaintiff appeals.

Affirmed.

D. L O'Hern and P. F. Leonard, both of Miles City, for appellant.

George W. Farr, of Miles City, for respondent.

ERICKSON Justice.

This appeal is taken from a judgment of the district court of Custer county wherein judgment was entered for the defendant and suit was dismissed. The action was brought on a promissory note for $500, and the matter was tried without a jury. The facts out of which the suit arose are these:

Joseph H. May, the original plaintiff who died during the pendency of this action and whose administratrix was substituted in his place, was the owner of certain real estate which he sold to one T. E. Sad on March 26, 1932. Under the agreement of sale, Sad agreed to pay as the purchase price the sum of $2,000, with some of the payments deferred. Sad apparently was in default on January 6, 1934, when the Federal Land Bank approved his application for a loan in the amount of $3,000 to be secured by land purchased from May and by other land. The application was made pursuant to the provisions of the Emergency Farm Mortgage Act of 1933, 48 Stat. 41. This Act was passed for the purpose of affording relief to distressed farmers and ranchers whose indebtedness had become excessive by reason of the economic depression commencing in 1929. The amount for which Sad's loan was approved was not sufficient to take care of all of his indebtedness. He was indebted not only to May, but also to other creditors, and it was therefore necessary for him to prevail upon his creditors to reduce their claims, as under the provisions of the federal Act before his loan could be made it was required "no loan shall be made under this section unless the holder of any prior mortgage or instrument of indebtedness secured by such farm property arranges to the satisfaction of the Land Bank Commissioner to limit his right to proceed against the farmer and such farm property for default in payment of principal." 12 U.S.C.A. § 1016(d). A form of agreement was prescribed by the Federal Land Bank known as a "composition agreement," and on March 1, 1934, May signed such an agreement, which recited that he held a claim against Sad in the amount of $1,800, and which then provided: "I agree to accept the sum of $1,150 net in full satisfaction of said claim" and upon such payment "all evidence of such indebtedness together with a properly executed release of such encumbrance will be delivered to you upon making such payment. I further agree that directly or indirectly no note, mortgage or other consideration has been or will be received from the debtor incident to such acceptance other than the amount named in this paragraph; and that when said consideration is paid all of my claims against the said debtor will have been satisfied in full." On the same day, March 1, 1934, on which May signed the composition agreement, there was executed another agreement which provides in full as follows:

"Agreement.

Whereas, Torstein E. Sad has requested J. H. May to sign a statement to the Federal Land Bank showing the balance due May on the land hereafter described and said Sad has agreed and does hereby agree to forthwith and at once before the completion of the loan applied for by him from said bank to pay May $650, so that the balance due will be $1,150.

Now, therefore, May has agreed to sign said statement under said conditions. If Sad fails or neglects to pay the said $650 forthwith or before the federal loan is ready for completion, May will not be required to deliver deed to Sad.

It is agreed that May is to receive $1,800.00, $650 from Sad and $1,150 from the federal loan.

The lands described being Lots 1 & 2 and E 1/2 NW. 1/4, W 1/2 NE 1/4, NE 1/4 NE 1/4, N.W. 1/4 S.E. 1/4, less 7.79 acres for highway in Sec. 18 T I N R 49, being 311.75 acres.

Dated Mar. 1, 1934.

J. H. May

Torstein E. Sad."

Only $50 was paid by Sad under this agreement. Various transactions occurred later which resulted in a reduction of the amount of the federal loan to $2,400; and two other composition agreements were signed by May, one on May 17, 1934, and another was signed on April 18, 1935, wherein he recited that $1,250 was due, and he agreed to accept the sum of $1,000. The form of this agreement had a further provision in it that, "I hereby represent that I have no understanding or agreement with said debtor that after said loan is closed any evidence of debt or other consideration will be given me by him for the amount by which I have agreed to reduce my claim or any part thereof."

Subsequently the loan was completed and something over $900 was paid to May, who then deeded the property upon which the loan was made to Sad's wife, and May executed a receipt dated June 26, 1935, which recited that the amount was received in full satisfaction of all claims of May against Sad of whatsoever kind, and that May released Sad from all debts, claims and demands which he had against him. The note in question was dated May 17, 1934, the same date the second composition agreement was signed by May.

The findings are, and they are supported by the evidence, that neither the Federal Land Bank nor the land bank commissioner nor any of its agents, knew anything of the agreement between Sad and May of March, 1934, or of the note here in question. The substance of the findings of fact of the court as to the note is amply supported by the evidence, and they set out the fact situation as it appears:

XII. That on or about the 17th day of May, 1934, the plaintiff, Joseph H. May, notwithstanding the making and execution by him of the composition agreements, and in furtherance of his secret agreement of March 1, 1934, with his debtor, Torstein E. Sad, without the knowledge of the said Federal Land Bank or the Land Bank Commissioner or of any creditor of the said Torstein E. Sad, in secret and in violation of the said composition agreements and for the purpose of obtaining an unfair advantage of Torstein E. Sad's other creditors, did fraudulently and unlawfully, for the purpose of defrauding Torstein E. Sad and the Federal Land Bank and the Land Bank Commissioner and other creditors, solicit and importune, require and exact of Torstein E. Sad that he obtain and deliver to him a note made and executed by some person financially responsible in the sum of $500. That pursuant thereto Sad obtained from this defendant, Ed Whitbeck, the paper which was signed by this defendant at the request of Sad [his son-in-law] with the specific understanding and agreement between him and Sad that Sad would also sign as maker, and that Sad would place his name on said paper over and above this defendant's name, and that Sad, if and when the said paper should be used as a promissory note would be treated and considered as the maker and this defendant would be considered as an accommodation maker with Sad. That the note was so signed by this defendant and delivered into the possession of Sad, but at the time of the delivery of said note the other blanks therein were not filled in. That Sad did deliver said incompleted note with this defendant's signature thereon to Joseph H. May in response to the solicitations of May. That in making the creditor's statements or composition agreements, May wrongfully, fraudulently and unlawfully concealed from the Federal Land Bank of Spokane and the Land Bank Commissioner the fact that he had theretofore received from Sad said note.

XIII. That at the time the note was delivered by Sad to May, May had promised to Sad, the Federal Land Bank and the Land Bank Commissioner, and the other creditors of Sad, by the composition agreements of settlement, to accept a sum less than the amount then due and owing to him by Sad, and the taking by him of the note was in violation of said promise and agreement, and was a fraud upon the bank and the commissioner, and upon Sad and his other creditors, and was designed to, and if permitted to be enforced, would permit May to obtain a preference over the other creditors of Sad.

A study of the evidence shows clearly and conclusively that the purpose of taking the note was to circumvent the requirements of the federal statute, and that the actual debtor was Sad rather than the defendant, and that it was understood between Sad and the defendant that Sad was to be the maker of the note, and that this note was secured with the knowledge and upon the solicitation of May. The whole course of May's conduct beginning with March 1, 1934, when he signed the first composition agreement and at the same time exacted from Sad an agreement to pay the difference between the amount he agreed to accept from the Land Bank and the total amount of the obligation, and continuing through May 17, 1934, when he signed another composition agreement and at the same time forced Sad to secure the defendant's note, and through April 18, 1935, when he signed the third composition agreement, shows without question that his purpose was to violate the terms of his voluntary agreements with the Land Bank, and by his representations to other creditors to gain an unfair advantage of them. There can be no question that other creditors had no knowledge of these attempts of May to secure full payment of Sad's obligation to him, while representing to other creditors and to the Land Bank that h...