National Bank of Republic v. Price

• Decision Date: 19 November 1923
• Docket Number: 3296
• Citation: 65 Utah 57,234 P. 231
• Court: Utah Supreme Court
• Parties: NATIONAL BANK OF THE REPUBLIC v. PRICE

234 P. 231

65 Utah 57

NATIONAL BANK OF THE REPUBLIC v. PRICE

No. 3296

Supreme Court of Utah

November 19, 1923

Rehearing denied December 31, 1924.

Second Rehearing denied March 6, 1925.

Appeal from District Court, Third District, Salt Lake County; L. B Wight, Judge.

Action by the National Bank of the Republic against H. Price. Judgment for plaintiff, and defendant appeals.

REVERSED, and new trial granted.

Willey Willey & Nelson, of Salt Lake City, for appellant.

Straup, Nibley & Leatherwood, of Salt Lake City, for respondent.

WEBER C. J., GIDEON, C. J. GIDEON, THURMAN, and CHERRY, JJ., FRICK, J., concurring. FRICK, J., dissenting.

OPINION

WEBER, C. J.

The substance of the complaint is that on October 7, 1920, the defendant executed and delivered his promissory note in the sum of $ 140 to the Pioneer Sugar Company, a corporation, payable November 15, 1921; that on January 27, 1921, the Pioneer Sugar Company, in due course, for value, sold, assigned, and delivered the note to Ernest R. Woolley, and then indorsed the note as follows:

"For value received Pioneer Sugar Company guarantees the payment of the within note, waiving protest, demand and notice of nonpayment."

The note was signed "Pioneer Sugar Company, Joseph Smith, president, C. G. Patterson, secretary."

It is averred that on February 9, 1921, Woolley, then the lawful holder of the note, for value and in due course, sold and delivered it to the plaintiff, who ever since has been and at the commencement of the suit was the holder of the note in due course, and that no part of it has been paid.

To the complaint defendant interposed a general and also a special demurrer the latter upon the ground that it cannot be determined from the complaint "by what means plaintiff became the owner of said note; that is to say, whether said plaintiff became the lawful holder and owner of said note through negotiation by indorsement or by assignment, whether plaintiff is suing on said note as a holder in due course or as assignee." The demurrers were overruled.

In his answer, defendant denies that the note was negotiated by indorsement, denies that plaintiff is the lawful holder in due course, and pleads as an affirmative defense that the Pioneer Sugar Company was and is a corporation under the laws of Utah; that the note formed a part of one contract with the Pioneer Sugar Company; that stock in the Pioneer Sugar Company was purchased and the note was signed for the purpose of erecting a sugar factory in Salt Lake county; that by the terms of the contract aforesaid the note of defendant, with other similar notes and contracts, was to be placed in trust with Halloran-Judge Trust Company until 3,000 acres of beets had been contracted to be grown in the counties of Salt Lake, Utah, Davis, and Tooele, and $ 300,000 in stock subscriptions obtained, or until February 15, 1921, at which time the notes and contracts were to be returned to the farmers signing them, if the required acreage and stock subscription agreements had not been obtained. Failure of consideration is also pleaded in that the Pioneer Sugar Company failed to erect a sugar factory in Salt Lake county as agreed, and that the officers of the sugar company, without having procured either the 3,000 acres of beets to be grown or the $ 300,000 in stock subscriptions in the counties mentioned, fraudulently transferred the notes of numerous farmers, including that of defendant, to Ernest R. Woolley for stock in the Interstate Sugar Factory; that said stock was without value and worthless. Further failure of consideration is pleaded, in that the contracts with many of the farmers, which contracts were a consideration for defendant's contract, were unlawful and void because not obtained by agents licensed as required by statute. It is also alleged that defendant never delivered the note to the Pioneer Sugar Company, and never authorized its delivery to said company. It is pleaded that by the terms of the contracts of the various farmers with the Pioneer Sugar Company, and with each other, the contracts were mutually dependant upon and formed a part of the consideration for every other contract, and that all contracts of the various farmers constituted one contract; that many of the agents of the Pioneer Sugar Company who secured stock subscription agreement forming part of this one contract were not licensed as the statute provides, and that all said contracts of stock sales and notes were unlawful and void. It is further alleged that plaintiff was not an innocent purchaser of defendant's note, but had knowledge and notice of the infirmities and defenses against the note, and that, if plaintiff did not have notice and knowledge of such infirmities and defenses, it was because plaintiff intentionally and willfully closed its eyes to the means of knowledge at hand.

Defendant in his answer declares himself able, ready, and willing to surrender to plaintiff all benefits, advantages, and property, if any such exist, to which he may be entitled by virtue of the Pioneer Sugar Company's having procured said note, and asks that the note be returned to him.

In its reply, plaintiff admits the corporate existence of the Pioneer Sugar Company, and that plaintiff holds a large number of notes made payable to the Pioneer Sugar Company and by it transferred to Ernest R. Woolley, who transferred them to plaintiff. All other allegations of defendant's affirmative answer are denied, and plaintiff affirmatively avers the execution and delivery of the note and the indorsement by the Pioneer Sugar Company.

After all the evidence was introduced, plaintiff moved for a directed verdict in its favor, which was granted. From the judgment defendant appeals.

The exception to the instruction directing a verdict for plaintiff and the exception to the court's rulings overruling the demurrers constitute the principal assignments of the 140 specifications of error.

It is urged that because of the form of the indorsement on the back of the note by the Pioneer Sugar Company the complaint does not contain facts sufficient to constitute a cause of action.

When the note was transferred to Woolley, the writing, as signed by the Pioneer Sugar Company, through its officers, was, "for value received Pioneer Sugar Company guarantees the payment of the within note, waiving protest, demand, and notice of nonpayment." It is argued by counsel for appellant that that is not an indorsement, but merely a contract of guaranty, or merely an assignment, and, not being an indorsement, that the plaintiff took the note subject to all equities and defenses which defendant had to the note in the hands of the original payee.

We have no doubt that the writing on the back of the note constitutes an indorsement, with an enlarged liability. There is some conflict in the earlier cases, but in the cases based upon the Uniform Negotiable Instruments Law it is almost universally held, and the great weight of judicial opinion is, that signing a name upon the back of a note guaranteeing payment thereof, waiving demand, protest, and notice of protest, operates as a transfer of the note and as an indorsement thereof with enlarged liability. 8 C. J. P. 354; 21 A. L. R. 1382; Cady v. Bay City Land Co., 102 Ore. 5, 201 P. 179, 21 A. L. R. 1367; Hendrix v. Bauhard, 138 Ga. 473, 75 S.E. 588; Voss v. Chamberlain, 139 Iowa 569, 117 N.W. 269, 19 L.R.A. (N. S.) 105, 130 Am. St. Rep. 331; Durand v. Shaw, 157 Mich. 192, 121 N.W. 809, 133 Am. St. Rep. 342; Bank v. Cummings, 69 Okla. 216, 171 P. 862, L.R.A. 1918D, 1099; Hutson v. Rankin, 36 Idaho 169, 213 P. 345, 33 A. L. R. 91.

The demurrers were properly overruled.

The Pioneer Sugar Company was organized under the laws of this state on July 12, 1920. On July 19th application was made to the Utah Securities Commission to sell "8 per cent. cumulative capital stock" for cash and negotiable paper, and the proceeds from the sales of securities were to be used to buy or build a beet sugar factory in Salt Lake county. A permit to sell stock was thereafter issued, and a stock-selling campaign was commenced among the farmers of Salt Lake, Davis, Utah and Tooele counties. A comprehensive plan had been evolved under certain agreements: First, there was the preliminary expense agreement. Next, the stock subscription agreement, signed by the defendant as well as all other stock purchasers, in which it was agreed, inter alia:

"That the purchaser hereby subscribes for seven shares of the capital stock of the company and, in payment therefor, gives his promissory notes in the total sum of $ 700.00, said notes being payable on or before November 15, 1921, November 15 1922, November 15, 1923, November 15, 1924, and November 15, 1925, respectively, and the company accepts the said subscription and issues seven shares of its capital stock in the name of the purchaser.

"It is mutually agreed and understood by and between the parties hereto that the purchaser is to prepare for, plant, and deliver not less than seven acres of sugar beets to the company during each of the years 1921, 1922, 1923, 1924, and 1925; the company accepting said bets in accordance with the terms and conditions of that certain sugar beet contract made in duplicate by and between the parties hereto of the date of October 7, 1920. * * *

"The terms and conditions of this contract are that the company will cause to be held in trust the said notes for the purchaser until 3,000 acres of beets are contracted to be grown for the company by the farmers of Salt Lake, Davis, Utah, and Tooele counties, and the sum of $ 300,000 in stock subscriptions is taken from the aforesaid farmers.

"In the event that the foregoing acreage and subscriptions are not secured by the close...