Salt Lake Inv. Co. v. Stoutt

• Decision Date: 14 March 1919
• Docket Number: 3226
• Citation: 180 P. 182,54 Utah 100
• Court: Utah Supreme Court
• Parties: SALT LAKE INV. CO. v. STOUTT

180 P. 182

54 Utah 100

SALT LAKE INV. CO. v. STOUTT

No. 3226

Supreme Court of Utah

March 14, 1919

Rehearing Denied April 22, 1919.

Appeal from the District Court of Salt Lake County, Third District Hon. Harold M. Stephens, Judge.

Action by the Salt Lake Investment Company against J. M. Stoutt.

Judgment for plaintiff. Defendant appeals.

AFFIRMED.

S. P Armstrong of Salt Lake City, for appellant.

Walton & Walton of Salt Lake City, for respondent.

THURMAN J. CORFMAN, C. J., and WEBER and GIDEON, JJ., FRICK, J., concurring.

OPINION

THURMAN, J.

This is an action to recover on a promissory note for the sum of $ 2,019.90. The complaint alleges the execution of the note July 1, 1911, payable to plaintiff within one year from date, with interest at 8 per cent. per annum. It purports to be given for a valuable consideration, and provides for a reasonable attorney's fee if suit is brought for its collection. The complaint also alleges that the plaintiff is the owner and holder of the note; that the same has not been paid nor any part thereof; that $ 300 is a reasonable attorney's fee; and prays judgment accordingly.

The answer of defendant denies that the note was given for a valuable consideration, or that it has not been paid, or that $ 300 is a reasonable attorney's fee; and further alleges, in effect, that the note was given in renewal of a former note, which former note was likewise given in renewal of a prior note; that the original note was for the sum of $ 1,000, and was made payable to one Russell Woodruff, and was delivered to him, together with a certificate for 10 shares of the capital stock of the Utah National Bank of Salt Lake City as collateral security; that said note made no reference to the collateral security; that thereafter said note became due, and defendant, being unable to pay the same, procured a renewal thereof to be made to the National Bank of Prescott, Ariz., and to be delivered to it, together with 12 shares of the capital stock of said Utah National Bank as additional security; that said renewal note was made and said shares delivered, but the note so renewed contained no reference to the collateral security; that afterwards plaintiff came into possession of said note, and upon his request defendant renewed the same in or about the year 1904, and, finally, on July 1, 1911, by way of renewal, defendant executed the note upon which the action was commenced; that each of the renewal notes was given for the purpose of extending the time of payment; that there was no agreement for the disposition or application of said collateral; that at the time said shares of stock were delivered as collateral they were reasonably worth $ 100 per share, which was their face value; that at the time of the commencement of the action said shares were reasonably worth $ 235 per share; that defendant, by diligent search and inquiry, has been unable to obtain information as to what disposition has been made of said shares of stock, whether the same have been sold and applied on the indebtedness, or as to the dividends thereof, if any, or how the same have been applied.

Defendant prays judgment that plaintiff be required to account for said collateral security and for any dividends or proceeds received from the sale of said stock; that if said stock has been converted defendant be credited with the value thereof, or, if said collateral is under plaintiff's control, that it be required to produce the same to be applied on said indebtedness or delivered to defendant on payment thereof. Plaintiff denied receiving said collateral, or any collateral, or any knowledge whatever concerning the same, prior to receiving defendant's answer.

The complaint was filed January 13, 1917. The original answer was filed March 2d, and the trial had on July 5th of the same year. The case was tried to the court without a jury. Judgment was rendered for plaintiffs, to reverse which defendant prosecutes this appeal.

No attempt was made by the defendant to prove there was no consideration for the note or that the same was invalid. The sole defense relied on at the trial related to the disposition and application of the collateral security and the contention of defendant that plaintiff should account for the same.

It is not necessary to state the evidence in detail. The testimony of respondent supported the complaint, and the testimony of appellant supported the answer, in so far as the giving of the collateral security is concerned; it showed he delivered the stock as security for the note as alleged in his answer. It failed to show, however, what had become of the stock, whether it had been sold or converted, or whether it still remains in the hands of the original pledgee. The evidence was conclusive that it never came into the hands of the plaintiff, and that it never had any knowledge of its existence at the time it purchased the note, nor until the defendant disclosed it by his answer filed March 2, 1917. Appellant's attorney announced at the beginning of the trial that one party or the other would require an inspection of the books and records of the Utah National Bank; that the bank was in process of moving, and the books and records at that time were inaccessible; that should it become necessary to have the records the case would have to be postponed. He thought the burden was on the plaintiff to produce the books. No motion was made for a continuance and the court directed the trial to proceed.

As before stated, the sole question arising before the judgment was rendered is: Was it incumbent upon the plaintiff to account for the disposition, application, or whereabouts of the stock pledged as security for the note? If it had been alleged and proven that the stock delivered had been legally sold and the amount determined, the defendant would have been entitled to a credit on the note for that amount. If it had been alleged and proven that the original pledgee had disposed of the stock unlawfully, then, in all probability, the defendant would have been entitled to a credit on the note in the sum equal to the value of the stock; or if it had been alleged that the stock had come into the possession of the plaintiff as security for the note, and plaintiff had admitted the fact or had not denied it, we are of the opinion it would have been incumbent upon the plaintiff to account for the stock, and until it did so it would not be entitled to judgment.

The note purchased by plaintiff was overdue when the purchase was made. It was not a holder in due course. Both under our statute and at common law it was subject to any defense growing out of the transaction which the defendant might have had against the original payee; but it is going too far to say that because the original payee to whom the stock was pledged and actually delivered could be required to account for it in a suit against the pledgor, that the plaintiff in this case, who never had the stock in his possession and never even knew of its existence, could be required to account for it as a condition precedent to judgment in his favor. None of the cases relied on by defendant go to that extent, and we have been unable to find any supporting appellant's contention. Appellant cites the following authorities: Jones, Col. Secur. & Pledges (3d. Ed.) section 595; 21 R. C. L. 687, section 47; Montague v. Stelts, 37 S.C. 200, 15 S.E. 968, 34 Am. St. Rep. 736; Richardson v. Ashby, 132 Mo. 238, 33 S.W. 806; Stuart v. Bigler's Assignees, 98 Pa. 80; Frank et al. v. Conklin, 146 A.D. 301, 130 N.Y.S. 778; Donnell v. Wyckoff, 49 N.J.L. 48, 7 A. 672; Waring v. Gaskill, 95 Ga. 731, 22 S.E. 659; Turner v. Com. Sav. Bank, 17 Ga.App. 631, 87 S.E. 918; Taggard v. Curtenius, 15 Wend. (N.Y.) 155; Potter v. Tyler, 2 Metc. (Mass.) 58; Gilliam v. Davis, 7 Wash. 332, 35 P. 69; Haden v. Lehman, 83 Ala. 243, 3 So. 528; Dan. Neg. Inst. (6th Ed.) section 177 (note 96), sections 205, 748, 1260, 1266, 1266a; Keyes v. Mann, 63 Iowa 560, 19 N.W. 666; American Car Co. v. A. C. St. Ry., 100 Ga. 254, 28 S.E. 40.

Upon an examination it will be found that in nearly every case cited the plaintiff was the pledgee or person to whom the collateral was pledged, which, in our judgment, is a vital distinction between those cases and the case at bar. Besides this, as before stated, plaintiff alleged, and a witness on its behalf testified, that plaintiff had no knowledge whatever of the collateral security; that it never received the collateral or knew of its existence. The question is therefore presented whether or not this affirmative statement of plaintiff was not as full and complete an account as it under the circumstances was able to give. The case of Turner v. Com. Sav. Bank, supra, appears to be the only case in any particular analogous to the present case; but, as will be seen, there was in that case a statute which controlled the decision, and, besides, the note specifically referred to collateral so that any person purchasing the note would know of the existence of collateral security.

In the absence of any authority holding that a plaintiff who brings suit upon a promissory note, who received no collateral with the note, and who is ignorant of its existence, is, nevertheless, bound to account for the same, we feel impelled to hold that it was not incumbent upon the plaintiff to do so in the case at bar.

Appellant also assigns as error the failure of the court to find upon certain issues presented by the answer. These relate to the giving of the stock as collateral security, the value of the stock, and whether or not there was notice to appellant of the sale of the stock. These issues, under the pleadings were immaterial. The court did find that the plaintiff had no notice or knowledge of the...