Moody v. Morris-Roberts Co.

• Decision Date: 15 December 1923
• Parties: H. L. MOODY, Respondent, v. MORRIS-ROBERTS COMPANY, a Corporation, Appellant
• Court: Idaho Supreme Court

226 P. 278

38 Idaho 414

H. L. MOODY, Respondent, v. MORRIS-ROBERTS COMPANY, a Corporation, Appellant

Supreme Court of Idaho

December 15, 1923

BILLS AND NOTES-NEGOTIABLE INSTRUMENT LAW-APPLIES ONLY TO NEGOTIABLE INSTRUMENTS-HOLDER IN DUE COURSE-WARRANTY OF TRANSFEROR-NOTE TAKEN BY NONCOMPLYING CORPORATION-NOT VOID-EFFECT OF DIRECTED VERDICT.

1. The Negotiable Instrument Law applies to negotiable instruments only, and does not affect the rights of parties to non-negotiable instruments.

2. Where the original payee of a note, although it may be negotiable in form, after maturity assigns it "without recourse," such instrument is not thereby negotiated or put in circulation as a negotiable instrument and does not thereby become a negotiable instrument, and the obligations arising out of such transfer are not governed by the Negotiable Instrument Law.

3. A promissory note, transferred by the original payee after maturity, although it may be negotiable in form, does not have an inception or origin as a negotiable instrument and does not thereby become negotiable, as that term is applied to commercial paper in the Negotiable Instrument Law.

4. A note, negotiable in form, transferred by a qualified indorsement by the original payee after maturity, constitutes the transferor a mere assignor of the title to the instrument, and the transaction is governed by the law relating to non-negotiable instruments or ordinary contracts.

5. One who takes an instrument, in form a negotiable note, from the original payee after maturity, is not a holder in due course and takes it subject to all equities and defenses arising out of the paper itself and attaching to it, or out of the transaction with reference to which the paper was made, or any agreement between the original parties with relation to the instrument.

6. Under the Negotiable Instrument Law, the warranty of the indorser contained in C. S., sec. 5932, runs only to a holder in due course.

7. An instruction which directs a verdict has the effect of an order sustaining a motion for nonsuit, in that it admits the truth of the adversary's evidence, and every inference of fact that may be legitimately drawn therefrom. In effect it instructs the jury that there is no evidence to support the claims of the party against whom it is directed.

8. A note given to a foreign corporation before it has complied with the constitution and statutes of this state relating to foreign corporations doing business in this state is not void, although such payee is without legal capacity to enforce the same in the courts of the state.

APPEAL from the District Court of the Fourth Judicial District, for Gooding County. Hon. H. F. Ensign, Judge.

Action to recover money paid for the purchase of a note. From judgment for plaintiff, defendant appeals. Reversed.

Reversed and remanded, with instructions. Costs awarded to appellant.

Bissell & Bird, for Appellant.

When it appears from the face of a note that action thereon is barred by the statute of limitations the same is not negotiable. (C S., secs. 5868, 5932, 6609 and 6631; Pena v. Vance, 21 Cal. 142; Clunin v. First Federal Trust Co., 189 Cal. 248, 207 P. 1009; McCormick v. Brown, 36 Cal 180, 95 Am. Dec. 170; Dern v. Olsen, 18 Idaho 358, Ann. Cas. 1912A, 1, 110 P. 164, L. R. A. 1915B, 1016; Southern P. Co. v. Prosser, 122 Cal. 413, 55 P. 145; McLeod v. Rogers, 28 Idaho 412, 154 P. 970.)

A note taken by a noncomplying foreign corporation is not negotiable. (C. S., secs. 4775, 5868, 5922, 5932 and 6058; Tarr v. Western Loan & Sav. Co., 15 Idaho 741, 99 P. 1049, 21 L. R. A., N. S., 707; 3 R. C. L. 1161; 8 C. J. 48; Smith v. Barner, 95 Ore. 486, 188 P. 216; Reynolds v. Vint, 73 Ore. 528, 144 P. 526; Windsor Cement Co. v. Thompson, 86 Conn. 511, 86 A. 1; Mackintosh v. Gibbs, 81 N.J.L. 577, Ann. Cas. 1912D, 163, 80 A. 554; 3 R. C. L., secs. 234 and 271.)

The statutory warranties attaching to the indorsement and transfer of a note without recourse do not accrue to one not a holder in due course. (C. S., secs. 5919, 5925, 5932, 6059, 6063, 6064; Pocatello Sec. Trust Co. v. Henry, 35 Idaho 321, 27 A. L. R. 337, 206 P. 175; Bruck v. Lambeck, 63 Misc. 117, 118 N.Y.S. 494; Craig v. Palo Alto Stock Farm, 16 Idaho 701, 102 P. 393; 8 C. J., secs. 576, 693, 697, 1004; Douville v. Pacific Coast Cas. Co., 25 Idaho 369, 138 P. 506; Everding v. Toft, 82 Ore. 1, 150 P. 757, 160 P. 1160, par. 11; First Nat. Bank of Lewiston v. Williams, 2 Idaho 670, 23 P. 552; Clark v. Paddock, 24 Idaho 142, 132 P. 795, 46 L. R. A., N. S., 475.)

Where the record contains some evidence tending to support defendant's positions it is error to direct a verdict in favor of plaintiff. (Pocatello Security Trust Co. v. Henry, 35 Idaho 321, 27 A. L. R. 337, 206 P. 175.)

A note taken by a noncomplying foreign corporation is unenforceable and the makers cannot be compelled to pay. Therefore, such a note is not "payable on demand or at a fixed or determinable future time," as required by sec. 5868, C. S. (Saline Valley Bank v. Peckham, 108 Kan. 560, 196 P. 593.)

The warranties of sec. 5932 and the provisions of sec. 5914 are intended to apply to a holder in due course only. (James v. Yaeger, 86 Cal. 184, 24 P. 1005; Farmers' etc. Bank v. Bank of Rutherford, 115 Tenn. 64, 112 Am. St. 817, 88 S.W. 939; American Hominy Co. v. Millikin Nat. Bank, 273 F. 550.)

James & Ryan, for Respondent.

One who indorses a promissory note without recourse warrants, among other things, that he or it has good title to it, that all prior parties had the capacity to contract and that he (the indorser) has no knowledge of any fact which would impair the validity of the instrument or render it valueless. (C. S., sec. 5932; Cressler v. Brown, 79 Okla. 170, 192 P. 417.)

Such an indorsement does not impair the negotiable character of the instrument. (C. S., sec. 5905.)

It is no legal defense for a warrantor to say that the person to whom the warranty is given knew that such warranty was false. (Newmyer v. Roush, 21 Idaho 106, 120 P. 464; Wilson v. Sunnyside Orchard Co., 33 Idaho 501, 196 P. 302; Smith v. Barner, 95 Ore. 486, 188 P. 216; Payette Nat. Bank v. Ingard, 34 Idaho 295, 200 P. 344.)

The fact that a note is past due does not of itself render such note non-negotiable and an indorsement after maturity does not affect its negotiability. (8 C. J., pp. 53, 344, secs. 58, 522; Leavitt v. Putnam, 3 N.Y. 494, 53 Am. Dec. 322; Mudd, Admx., v. Harper, 7 Md. 110, 54 Am. Dec. 644; Gardner v. Beason Trust Co., 190 Mass. 27, 5 Ann. Cas. 581, 112 Am. St. 303, 76 N.E. 455, 2 L. R. A., N. S., 767; Carpenter v. Greenop, 74 Mich. 664, 16 Am. St. 662, 42 N.W. 276, 4 L. R. A. 241.)

If a party sells a note, and it is not what upon its face it purports to be, and what he by implication affirms it to be, he is in justice, and by implied assumpsit, liable to the vendee for what he has received from him as the price of the note, on the ground of failure of consideration. (3 R. C. L., p. 1165 (2); 8 C. J., p. 397 (notes under 48b).)

For the purpose of the indorser's contract, the party taking the note with the indorsement is a holder in due course, notwithstanding his knowledge that the note was not an enforceable obligation of the maker. (Erwin v. Downs, 15 N.Y. 575; First Bank of Notasulza v. Jones, 156 A.D. 277, 141 N.Y.S. 304; Young's Estate, 234 Pa. 287, 83 A. 201.)

"A note which is negotiable by its terms does not lose that characteristic until paid or merged in a judgment." (8 C. J., p. 52, sec. 55; Pitman v. Walker, 187 Cal. 667, 203 P. 739; Manhattan Savings Inst. v. New York Nat. Exchange Bank, 170 N.Y. 58, 88 Am. St. 640, 62 N.E. 1079.)

WILLIAM A. LEE, J. Budge, C. J., Justice Wm. E. Lee, concurring, McCarthy and Wm. E. Lee, JJ., concur in the result, MCCARTHY, C. J., Specially Concurring. Dunn, J., dissents.

OPINION

WILLIAM A. LEE, J.

--This is an action by respondent against appellant to recover the amount he had paid appellant for certain promissory notes purchased from it. The first of these had been given by J. D. Johnson and his wife to appellant, for $ 500, dated January 7, 1911, due in one year, and secured by a real estate mortgage of even date therewith. The second note was for $ 580, dated October 20, 1911, due in six months, and also secured by a real estate mortgage on property situate in Colorado, being executed by Mrs. Anna Johnson, who had signed the first note with her husband, J. D. Johnson. Both notes represented the same indebtedness.

Appellant is a Wyoming corporation, engaged in the mercantile business at Hagerman, Idaho. At the time of the execution of the first note, owing to an error in certifying its articles of incorporation, it had failed to comply with the statutory requirements relative to foreign corporations qualifying to do business in this state, and could not sue upon or enforce in the courts of this state any agreements made in its name or for its use. (Morris-Roberts Co. v. Mariner, 24 Idaho 788, 135 P. 1166.)

In July following the execution of the first note, it qualified to do business in this state. There is no contention that the makers of this note did not receive full consideration for its execution, and its infirmity then rested solely upon appellant being a noncomplying corporation at the time it took the note.

The execution of the second note by Mrs. Johnson was an effort on the part of both parties to validate the obligation represented by the first note. It included accrued interest and was secured by a real estate mortgage on her property situate in Colorado. At the time negotiations between appellant and respondent for the sale and purchase of these notes began, this note was with attorneys in the state of Colorado, where it had been sent with...