McLean v. Paddock

• Decision Date: 17 July 1967
• Docket Number: No. 8032,8032
• Citation: 430 P.2d 392,1967 NMSC 165,78 N.M. 234
• Parties: Alexander McLEAN and William McLean, Plaintiffs-Appellees, v. Carl R. PADDOCK and Essie Paddock, his wife, Defendants-Third-Party Plaintiffs-Appellants, v. HARPER REALTY COMPANY, Third-Party Defendant-Appellant.
• Court: New Mexico Supreme Court

Page 392

430 P.2d 392

78 N.M. 234

Alexander McLEAN and William McLean, Plaintiffs-Appellees, v. Carl R. PADDOCK and Essie Paddock, his wife, Defendants-Third-Party Plaintiffs-Appellants, v. HARPER REALTY COMPANY, Third-Party Defendant-Appellant.

No. 8032.

Supreme Court of New Mexico.

July 17, 1967.

Hines & Mistretta, Albuquerque, for appellees

Harry E. Stowers, Jr., Gerald W. Roth, Jr., Albuquerque, for appellants Paddock.

Richard C. Civerolo, Paul J. Matteucci, Albuquerque, for appellant Harper Realty Co.

OPINION

NOBLE, Justice.

The circumstances giving rise to this appeal began in 1958 when Carl R. Paddock and Essie Paddock, his wife (hereafter referred to as Paddocks), executed a real estate listing authorizing Harper Realty Company, a real estate broker (hereafter referred to as Harper), to sell their motel. Harper produced a purchaser acceptable to Paddocks, and a binder agreement was executed, reciting a deposit of $1,000 and providing for a further cash down payment of $8,000 on a total price of $249,000. Both the listing and the binder agreement called for the payment to Harper of a 6% commission on the total purchase price. The binder specified that Harper would receive $3,000 in cash and the balance in monthly payments. Paddocks and the purchaser thereafter executed a real estate contract which, among other things, directed the Albuquerque National Bank, escrow agent, to pay Harper $75 per month from the purchaser's monthly installment payments. Concurrently with the execution of the real estate contract, Paddocks executed a promissory note in the principal amount of $12,388.20, payable to Harper in monthly installments of $75, representing the balance of the commission. The note was unconditional in its terms and contained no reference to the real estate contract, nor did the contract refer to the note. Harper negotiated this promissory note to Alexander and William McLean (hereafter referred to as McLeans) in May, 1959. Payments on the note becoming in default in January, 1960, McLeans elected to declare the whole balance due, as provided in the note, and sued Paddocks, who, in turn, filed a third-party complaint against Harper.

The trial court found that Harper had orally agreed the note would be paid solely from the monthly installments on the purchase price of the motel, and that Paddocks were induced to sign the note by Harper's false representation that a note was required in order to authorize the escrow agent to make these monthly payments to Harper. The court concluded that McLeans were holders in due course, finding they had no knowledge of Harper's misrepresentations. Judgment was, accordingly, entered in favor of McLeans and against Paddocks. Finding that Paddocks had relied to their detriment upon Harper's misrepresentations, they were awarded a judgment against Harper on their third-party action. Paddocks and Harper have appealed.

We shall first consider the Paddocks' appeal from the McLeans' judgment. Their first contention is that because the McLeans were not licensed real estate brokers, § 67--24--33, N.M.S.A. 1953, prohibited any action to enforce payment of the note given for the real estate commission. This argument is without merit. The McLeans' action is not one for the collection of a real estate commission or compensation earned as a real estate broker or salesman within the meaning of that statute. An action seeking judgment on a promissory note is a separate cause of action and Star Realty Co. v. Sellers,73 N.M. 207, 387 P.2d 319, is, accordingly, distinguishable. See, Institute for Essential Housing, Inc. v. Keith, 76 N.M. 492, 416 P.2d 157. Certainly the commercial policies embodied in the law of negotiable instruments compel the conclusion that this forfeiture clause of the Real Estate Brokers' Law has no applicability where, as here, the note has been negotiated to a holder in due course. See Modern Industrial Bank v. Taub, 134 N.J.L. 260, 47 A.2d 348; Real Estate-Land, Title & Trust Co. v. Dildy, 92 S.W.2d 318 (Tex.Civ.App.).

The Paddocks challenge the court's determination that the McLeans were holders in due course of a negotiable instrument on several grounds. We note the issues presented by this appeal are governed by the Uniform Negotiable Instruments Law (§§ 50--1--1, et seq., N.M.S.A. 1953, being ch. 83, Laws 1907), since repealed with the enactment of the Uniform Commercial Code (ch. 96, Laws 1961). The note here involved is dated August 9, 1958, and reads:

'For value received, I, we, or either of us promise to pay to Harper Realty, or order, the sum of Twelve Thousand Three Hundred Eighty-eight and 20/100 Dollars, said amount to be paid in equal installments of Seventy-Five and no/100 Dollars, each, payable monthly after date beginning _ _ 1, 1958 and on the first day of each month thereafter until the whole amount first herein named and any interest or costs shall have been paid in full. * * *'

Two contentions arise from the failure of the note to specify, in the blank space indicated, the month in which payments were to begin. Pointing to the requirement of section 1, Negotiable Instruments Law, that the instrument '(m) ust be payable on demand, or at a fixed or determinable future time,' the Paddocks argue that this note lacks negotiability. Alternatively, they argue the blank space prevents the McLeans from taking an instrument '(t)hat is complete and regular upon its face' within the language of section 52 of the Negotiable Instruments Law, defining a holder in due course. See the analysis of similar contentions in Note 22 Columbia Law Rev. 159.

The Paddocks rely primarily upon Wilkins v. Reliance Equip. Co.,259 Ala. 348, 67 So.2d 16; In re Philpott's Estate, 169 Iowa 555, 151 N.W. 825; United Ry. & Logging Supply Co. v. Siberian Commercial Co., 117 Wash. 347, 201 P. 21, 19 A.L.R. 506; and Remedial Plan, Inc. v. Ott, 9 Ky. 161,250 S.W. 825, in support of their position. Each of these cases, however, involves a note containing an omission such as 'payable four _ _ after date,' and having no certainty that it will ever become due. Those decisions are distinguishable. The Paddocks note is 'payable monthly after date.' The note is dated August 9, 1958. If the instrument had stopped at this point, it could not be doubted but that payments would have commenced September 9, 1958. The following language making payments due on the first day of each month does not create a fatal ambiguity under either theory of the Paddocks. Construing the instrument as a whole, it seems clear that the first payment was intended to be September 1, 1958. Cf. Balliet v. Wollersheim, 241 Wis. 536, 6 N.W.2d 824; Puckett v. Big Lake State Bank, 73 S.W.2d 893 (Tex.Civ.App.).

Section 52 of the Negotiable Instruments Law defines a holder in due course as one who had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Section 56, in turn, defines notice as 'actual knowledge of the infirmity or defect or knowledge of such facts that his action in taking the instrument amounted to bad faith.' Paddocks assert that the presence of a number of suspicious circumstances compels the conclusion that the McLeans took the note in 'bad faith.' Attention is first called to the fact that none of the payments made prior to the negotiation are reflected on the note. The proof, however, shows that the original note was in the possession of the escrow agent and that these monthly payments were reflected on a duplicate original kept by Harper. In the light of the principle that the question of good faith is one for the trier of the facts, Winter v. Hutchins, 20 Idaho 749, 119 P. 883; Seaside Nat'l Bank v. Allen,35 Ariz. 302, 277 P. 68, we cannot agree that the trial court erred, as a matter of law, in its conclusion. Cf. Gebby v. Carrillo, 25 N.M. 120, 177 P. 894; First Nat'l Bank v. Stover, 21 N.M. 453, 155 P. 905, L.R.A.1916D, 1280. In so holding, we note there is no requirement of statute or otherwise that proof of the payment of installments when due be shown on the instrument itself. McCorkle v. Miller, 64 Mo.App. 153 (1895).

Paddocks also assert that the endorsement 'without recourse' was a second suspicious circumstance. The commentator in Annot. 77 A.L.R. 487, concludes that as a general rule such an endorsement does not affect the character of the endorsee as a holder in due course, since such endorsement does not of itself constitute notice of defects in the instrument. See, also, 11 Am.Jur.2d, Bills & Notes, § 406; 1 Joyce, Defenses to Commercial Paper, § 647 (2d Ed. 1924) p. 883; and see Howard v. Biggs, 378 P.2d 306 (Okla. 1962). Section 38 of the Negotiable Instruments Law expressly states such an endorsement does not impair the negotiable character of the instrument. See Beutel's Brannan, Negotiable Instruments Law, § 38 at page 626 (7th Ed. 1948). Although the authorities are not uniform as to whether such an endorsement can be regarded as evidence of bad faith, compare Continental Nat'l Bank v. Cole,51 Idaho 140, 3 P.2d 1103, 77 A.L.R. 484, with Merchants' Nat'l Bank v. Branson, 165 N.C. 344, 81 S.E. 410; and Robertson v. Budzier, 229 Mich. 619, 201 N.W. 949, the use of such an endorsement, we feel, has a legitimate place in commercial instruments. To hold that such an endorsement constitutes some badge of guilty knowledge of fraud would unduly impair the negotiability of commercial paper. See Downs v. Horton,287 Mo. 414, 230 S.W. 103; Packard v. Woodruff, 57 Pa.Super. 176 (1914).

The blank space for the beginning month of the installment payments, asserted as the third suspicious circumstance, has been discussed. We cannot say that any of the circumstances pointed to, alone or collectively, compel a conclusion of bad faith by McLeans or an actual knowledge of an infirmity in the note. Our review of the record discloses that the court's findings have substantial support in the evidence.

Paddocks next argue that Harper's...