Rotert v. Faulkner, 12985

Decision Date31 October 1983
Docket NumberNo. 12985,12985
Citation660 S.W.2d 463
Parties37 UCC Rep.Serv. 1596 Ronald R. ROTERT, Respondent, v. Charles E. FAULKNER and Alice M. Faulkner, Appellants.
CourtMissouri Court of Appeals

John Z. Williams, Williams, Smallwood & Crump, Rolla, for appellants.

W.H. Thomas, Jr., Ralph J. Haslag, Routh, Thomas & Birdsong, P.C., Rolla, for respondent.

CROW, Judge.

Charles E. Faulkner and Alice M. Faulkner, makers of a promissory note, appeal from a judgment against them for the full amount of the note. They argue that, as a matter of law, they owe only half the balance due. The facts are undisputed.

The Faulkners signed the note September 29, 1977. It was payable to the order of Elmer E. Miller and Ronald R. Rotert "as joint tenants and not as tenants in common." The principal amount was $25,000, "with interest thereon from the date of death of Elmer E. Miller" at the rate of eight percent per annum. Principal and interest were payable in monthly installments of $303.32 beginning one month after Miller's death.

The note provided that if there were default in the payment of any installment and said installment remained overdue and unpaid, then both principal and interest would become immediately due and payable at the option of the holder. The note further provided that in case payment was not made at maturity and the note was placed in the hands of an attorney at law for collection, the makers agreed to pay the costs of collection, including a reasonable attorney's fee.

The note was delivered to Miller.

On July 12, 1978, Miller wrote the following on the note:

"July 12, 1978

Paid In Full

for Services Rendered

Elmer E. Miller"

Miller also wrote "Paid" across the face of the note and, on the same day (July 12, 1978), returned the note to Charles E. Faulkner, who kept it thereafter.

Miller died December 29, 1979.

The Faulkners paid nothing to Miller or Rotert during Miller's lifetime. 1 After Miller's death, the Faulkners paid nothing to Rotert.

Rotert employed a firm of attorneys at law to collect the note. Suit was filed July 10, 1981.

The cause was tried without a jury. At trial, all parties treated the note as having been initially owned by Miller and Rotert as joint tenants with right of survivorship. Rotert contended that, as surviving joint tenant, he was entitled to be paid the full amount of the note. The Faulkners conceded that Rotert was entitled to half the balance due, but contended that Miller's acts of July 12, 1978, had the effect of (a) severing the joint tenancy, thereby making Miller and Rotert tenants in common, and (b) assigning Miller's interest in the note--said by the Faulkners to be one-half--to them. The Faulkners thus denied liability for half the debt.

The trial court, relying on § 400.3-116, RSMo 1969, 2 held that Miller's unilateral attempt to discharge the note was a nullity, and of no force and effect. § 400.3-116 provides, in pertinent part:

"An instrument payable to the order of two or more persons


(b) if not in the alternative is payable to all of them and may be negotiated, discharged or enforced only by all of them."

With respect to the Faulkners' contention that Miller's attempted discharge transferred a half interest in the note to them, the trial court concluded that (a) Miller and Rotert held the note as joint tenants, (b) Miller's attempted discharge, being a nullity under § 400.3-116, did not sever the joint tenancy, (c) after Miller's attempted discharge, the Faulkners could, at most, arguably be deemed to equitably hold whatever interest Miller had in the note, (d) the Faulkners took no action, by partition or otherwise, to sever any interest they held in the note before Miller died, (e) Miller's death extinguished that interest, and (f) Rotert, as surviving joint tenant, was entitled to recover in full.

The trial court entered judgment for Rotert against the Faulkners for $25,000, together with interest at the specified rate from the date of Miller's death, an attorneys' fee of $3,500, expenses of $53.15, and costs.

On appeal, as below, the Faulkners admit liability for half the balance due on the note, but deny liability for the other half. They do not challenge the attorneys' fee or expenses.

We begin our analysis by holding § 400.3-116, on which the trial court relied, inapplicable.

§ 400.3-116 is part of Article 3 of the Uniform Commercial Code ("UCC"). The UCC was adopted in Missouri effective July 1, 1965. Laws 1963, p. 637, Sec. 10-101.

In Article 3 of the UCC (and therefore § 400.3-116) the term "instrument" means a negotiable instrument. § 400.3-102(1)(e).

A writing, to be a negotiable instrument within Article 3 of the UCC, must, among other things, be payable on demand or at a definite time. § 400.3-104(1)(c). The note here is not payable on demand; thus, if it is to be a negotiable instrument, it can be so only if it be payable at a definite time.

§ 400.3-109(1) provides, in pertinent part, that an instrument "is payable at a definite time if by its terms it is payable ... (d) ... automatically upon or after a specific act or event."

§ 400.3-109(2) provides that an instrument which by its terms is otherwise payable only upon an act or event uncertain as to time of occurrence is not payable at a definite time even though the act or event has occurred.

These UCC provisions as to definiteness of time of payment differ from the statutory provisions that dealt with that subject prior to July 1, 1965.

One of the prior statutes, § 401.001(3), RSMo 1959, provided that an instrument, to be negotiable, must be payable on demand or at a fixed or determinable future time. Another, § 401.004.1(3), RSMo 1959, provided that an instrument was payable at a determinable future time if payable on or at a fixed period after the occurrence of a specified event which was certain to happen, though the time of happening be uncertain. The two sections just cited were part of chapter 401, RSMo 1959, the Negotiable Instruments Law ("NIL"), repealed effective July 1, 1965. 3 Cases under the NIL recognized that because death was inevitable, an instrument payable at, or at a fixed period after, a person's death was payable at a determinable future time, thus satisfying that requirement for negotiability. Smith v. Lentini, 125 Vt. 526, 220 A.2d 291 (1966); Murrell v. Gibbs' Adm'r, 275 Ky. 124, 120 S.W.2d 1018 (1938). 10 C.J.S. Bills and Notes § 97 (1938).

That principle, however, no longer pertains. The Missouri Code Comment under § 400.3-109 (the "definite time" provision of the UCC) explains that the NIL rule was changed by the UCC. The Comment states:

"It [the NIL rule] provided that an instrument payable at a fixed time after an occurrence certain to happen but with the time of happening uncertain was negotiable. Since notes of this type are not common in commercial usage and need not be negotiable, this rule is abolished."

The Missouri Code Comment is followed by the Uniform Commercial Code Comment. Paragraph 1 of the latter refers specifically to post-obituary notes, along with others payable upon or at a fixed period after similar uncertain dates. Observing that such notes are likely to be made under unusual circumstances suggesting good reason for preserving defenses of the maker, the Comment states such notes are, accordingly, eliminated.

Commentators agree that an instrument payable on or after death is not negotiable under the UCC because the time of payment is uncertain. 2 Anderson, Uniform Commercial Code § 3-109:9 (2d ed. 1971); Bender's U.C.C. Service, Hart & Willier, Commercial Paper § 2.13 (1983). Succession of Vidrine, 377 So.2d 564, 566 (La.App.1979), is in accord, taking specific notice of the difference in treatment of such instruments between the NIL and the UCC.

Inasmuch as the first payment on the note here was due one month after Miller's death, the note was not payable at a definite time within the meaning of Article 3 of the UCC. The note, therefore, is not a negotiable instrument.

But for one exception not material here, Article 3 of the UCC (and therefore § 400.3-116) applies only to negotiable instruments. § 400.3-805. 4 Consequently, because the note here is not a negotiable instrument, the legal effect of Miller's acts of July 12, 1978, is not to be determined by § 400.3-116, or by any other statute that applies exclusively to negotiable instruments.

This does not mean, however, that ownership of the instant note cannot be transferred. It means only that the transfer cannot amount to a "negotiation," a particular type of transfer in which the transferee becomes a holder, § 400.3-202(1), and, by reason thereof, acquires certain specific rights in the instrument, § 400.3-301. 5

The NIL, during the time it was in effect, did not prescribe an exclusive method of transferring negotiable instruments, but only the manner in which their independence of equities could be preserved. Butler v. Kopplin, 253 S.W.2d 514, 516 (Mo.App.1952). Regardless of the NIL, a note could still be transferred by assignment, or by mere delivery without indorsement, save only that in such case the transferee took the note subject to all the defenses and equities to which it was subject in the hands of the transferor. Id.

The UCC, as did the NIL, recognizes that negotiation is not the only method of transferring a negotiable instrument. One can be transferred by assignment, and if transferred in that manner, Article 3 of the UCC generally has little application to the transfer. Bender's U.C.C. Service, Hart & Willier, Commercial Paper § 3.01 (1983). Indeed, Article 3 of the UCC specifically recognizes that if a negotiable instrument is indorsed in a certain way, the indorsement operates only as a partial assignment. § 400.3-202(3).

Instruments that are not negotiable, such as the note here, may, like negotiable instruments, be transferred by assignment. Kaw Valley State Bank & Trust v. Commercial Bank of...

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