Sanden v. Hanson
| Decision Date | 31 August 1972 |
| Docket Number | 8819,Nos. 8818,s. 8818 |
| Parties | 11 UCC Rep.Serv. 1002 John SANDEN and Anna B. Sanden, Plaintiffs and Appellants, v. Arland G. HANSON and Evelyn Hanson, Defendants and Respondents. Civ. |
| Court | North Dakota Supreme Court |
Syllabus by the Court
1. Section 41--03--19, N.D.C.C., applies to negotiable instruments the general rule that writings executed as part of the same transaction are to be read together as a single agreement because, as between the immediate parties, a negotiable instrument is merely a contract, and is no exception to the principle that the courts will look to the entire contract in writing.
2. Having found that the promissory note and the standby agreement, when read together, pursuant to § 41--03--19, N.D.C.C., prevents the plaintiffs from securing a judgment on the note until the written consent of the Small Business Administration has been obtained or until the $15,000 owing to the bank has been fully paid, we conclude that since neither of these conditions has been met, the action on the note was properly dismissed.
3. The mutual consent of the parties required for termination of a lease under § 47--16--14, N.D.C.C., may be express or implied from the conduct of the parties. Thus, a lease may be tetminated or surrendered either by express agreement or by operation of law, whereby the surrender results from acts of the parties to the lease which imply mutual consent to the termination.
4. In an action to recover rent due under a lease, the defendant must plead the affirmative defense of surrender of the lease by operation of law and must prove the elements of that defense. The initial element which must be proved is that the defendants intended to surrender the leased premises to the lessors. The second element which the defendants must prove is the acceptance of the surrender by the lessors. This acceptance may be implied where the landlord takes possession of the premises and uses them for his own purposes.
5. Having found that the defendants have met their burden of proof with respect to the elements of the affirmative defense of surrender and acceptance, we conclude that the district court properly dismissed the plaintiffs' action for rent overdue on the lease.
Stokes, Vaaler, Gillig, Warcup & Woutat, Grand Forks, for plaintiffs and appellants.
Ella Van Berkom, Minot, for defendants and respondents.
This is an appeal by the plaintiffs, John Sanden and Anna B. Sanden, from judgments of the District Court of Bottineau County, dismissing their complaints in two actions which were consolidated for trial. The plaintiffs have demanded a trial de novo.
The first action was initiated on July 31, 1968, by summons and complaint, which complaint alleged that on September 10, 1965, the defendants, Arland G. Hanson and Evelyn Hanson, became indebted to the Sandens by reason of a promissory note executed on September 10, 1965, the complaint further alleged that $3,100 had been paid on the note by the Hansons and that $6,900 was still owing.
In response to this complaint the Hansons filed an answer and counterclaim alleging that the Sandens were entitled to no payments on the note described in the complaint. The transacript of the trial and the memorandum opinion of the district court reveal that the basis for the Hansons' denial of liability on the note dated September 10, 1965, was the existence of a 'Standby Agreement' entered into by the Sandens, the Hansons, and the Small Business Administration acting through the First National Bank in Bottineau, North Dakota.
The promissory note, which is the basis of the Sandens' complaint, and the Standby Agreement, which is the basis of the Hansons' answer and counterclaim, are the result of a series of dealings between the Sandens and the Hansons whereby the Hansons purchased a children's clothing store from the Sandens.
During the summer of 1965, after the Hansons had agreed to purchase the Sandens' business for a total price of $25,000 ($15,000 was allocated to inventory and the remainder, $10,000, was allocated to fixtures), the Sandens and the Hansons decided to look for methods of financing the sale. To this end the Hansons arranged a Small Business Administration loan for $15,000 through the First National Bank in Bottineau. However, before the SBA would make the loan to the Hansons, it required that the Hansons, the Sandens, and the SBA enter into a Standby Agreement, the purpose of which was to ensure that the SBA loan of $15,000 would be repaid before any payments (with the exception of some payments allowed by the Standby Agreement) were made by the Hansons to the Sandens on the $10,000, which part of the total purchase price of $25,000 would still be owing by the Hansons to the Sandens. After the Sandens and the Hansons signed the Standby Agreement, the SBA, acting through the First National Bank in Bottineau, loaned the $15,000 to the Hansons. This amount was then paid to the Sandens as payment for the inventory in the store, thereby leaving $10,000 still owing the Sandens for the store fixtures.
On September 10, 1965, the same day that the SBA made the loan of $15,000 to the Hansons pursuant to the Standby Agreement, the Hansons and the Sandens executed a promissory note for the $10,000 still owing on the total purchase price of $25,000. Pursuant to the note, the Hansons made monthly installment payments totaling $3,100 until, because of financial difficulties encountered in the conduct of the children's clothing store business, they were unable to make any further payments to the Sandens. Approximately three months after the discontinuation of payments on the note, the Sandens commenced this action for the balance due.
The primary issue raised by the Sandens on this appeal from the dismissal of their action on the promissory note is the extent to which the terms of the Standby Agreement may affect or modify the terms of the promissory note executed by the Hansons and payable to the Sandens.
The Standby Agreement provides, in pertinent part, as follows:
'. . . Borrower, John & Anna B. Sanden, Bottineau, North Dakota (hereinafter called 'Standby Creditor') . . . covenant to and With each other, and to and with Bank and SBA as follows:
(Emphasis added.)
The extent, if any, to which the above provisions of the Standby Agreement may affect or modify the terms of the promissory note which is the basis of this action is specifically dealt with in § 41--03--19 of the North Dakota Century Code, which, in part, provides:
41--03--19. (3--119) Other writings affecting instrument.--1. As between the obligor and his immediate obligee or any transferee the terms of an instrument may be modified or affected by any other written agreement executed as a part of the same transaction . . .'
Section 41--03--19, N.D.C.C., applies to negotiable instruments the general rule (12 Am.Jur.2d, Bills and Notes § 1244) that writings executed as part of the same transaction are to be read together as a single agreement because, as between the immediate parties, a negotiable instrument is merely a contract, and is no exception to the principle that the courts will look to the entire...
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