Stankovich v. Lehman

• Decision Date: 18 January 1963
• Docket Number: No. 119,119
• Citation: Stankovich v. Lehman, 187 A.2d 309, 230 Md. 426 (Md. 1963)
• Parties: Joseph J. STANKOVICH et ux. v. Robert E. LEHMAN et ux.
• Court: Maryland Court of Appeals

Page 426

230 Md. 426

187 A.2d 309

Joseph J. STANKOVICH et ux. v. Robert E. LEHMAN et ux.

No. 119.

Court of Appeals of Maryland.

Jan. 18, 1963.

Wilson K. Barnes, Baltimore (Anderson, Barnes, Coe & King, Baltimore, on the brief), for appellants.

Risque W. Plummer, Baltimore (Paul R. Kach and Griffin & Plummer, Baltimore, on the brief), for appellees.

Argued before BRUNE, C. J., and HAMMOND, PRESCOTT, MARBURY and SYBERT, JJ.

HAMMOND, Judge.

The trial judge refused to strike out a judgment by confession entered against the appellants upon a warrant of attorney contained in a promissory note which they had signed as makers. They asserted below and assert here that the appellees, the endorsees of the note, who obtained the judgment were (because the note was not negotiable and the appellees were not holders in due course) no more than assignees, subject to all defenses they, the makers, could have asserted against the original payees and that the court below abused its discretion in not striking the judgment and permitting their claims of fraud in the obtention of the note and failure of consideration to be determined on the merits.

Andre Carrigan, a real estate developer, interested one of the appellants, Joseph Stankovich, a builder of houses, and six other builders in a cooperative effort at developing a tract of land Carrigan owned in Carroll County called Deer Park. The builders were each to buy a number of lots and, in part payment, sign notes which Carrigan was to hold until the houses were built and sold, when he would collect $2,000 per lot. Carrigan was to arrange construction financing and permanent financing for the buyers, handle sales and build all roads in the subdivision. To guarantee the construction of the roads, Carrigan agreed that he would 'at time of settlement' place $30,000 in escrow. On December 28, 1960, Mr. and Mrs. Stankovich executed a written contract to buy ten lots from Carrigan for $20,000, of which $4,000 was paid by the promissory note involved here, signed by them, and the balance by a purchase money mortgage to be executed 'at time of settlement' on or before ninety days later.

The note was payable to Carrigan and his wife, six months after date, with interest at 6%. It contained a warrant to confess judgment by empowering any attorney of any Court of Record to 'confess judgment against us as of any term for the above sum with Costs of suit and Attorney's commission of 10% for collection.'

In May 1961 Carrigan sold the note to the Lehmans, the appellees, whom Mrs. Carrigan had known for a long time and who had recently moved to Baltimore. Mr. Lehman was an industrial salesman. He looked at a Dun and Bradstreet report on Stankovich (which did not mention the note given Carrigan) and drove by the Stankovich home, observing a truck of Stankovich's construction firm standing in front. Carrigan told him of the plan to develop Deer Park with the aid of 'marginal' builders and that he, Carrigan, needed money. He offered to sell the $4,000 note for $2,800 in cash, and Lehman bought it.

When the note was not paid at maturity (it had been unilaterally 'extended' six months by the Carrigans and Lehmans), the judgment by confession was entered.

In denying the motion to vacate the judgment, Judge Byrnes found that the Lehmans were holders in due course and that the note was negotiable despite its provision authorizing confession of judgment without reference to maturity. He said, without stating particulars, that his view was that: 'A reading of the entire instrument and consideration of the attendant circumstances compels the conclusion that the provision was operative only after maturity.'

We have been unable to come to the same conclusion. The Negotiable Instrument Act, Code (1957), Art. 13, Secs. 22(2) and (3) and 26(2), provides that to be negotiable, an instrument '[m]ust contain an unconditional promise or order to pay a sum certain in money' and '[m]ust be payable on demand, or at a fixed or determinable future time,' but that the negotiable character of an instrument otherwise negotiable is not changed by a provision which '[a]uthorizes a confession of judgment if the instrument be not paid at maturity.' Elementary rules of statutory construction would lead immediately to the deduction that if an instrument authorizes confession of judgment before maturity, it is not negotiable because the power of the holder to mature the note at any time violates the requirement that the time of payment must be certain, and the cases have so held. See Crothers v. National Bank of Chesapeake City, 158 Md. 587, 591, 149 A. 270 (where the note authorized judgment thereon 'before, at or after maturity'), and Johnson v. Phillips, 143 Md. 16, 21-22, 122 A. 7 (where the warrant authorized confession of judgment on the note 'at any time for the amount thereof'), and Hart v. Hart, 165 Md. 77, 82, 166 A. 414.

It would seem logical that if the statute, as it does, preserves negotiability only if the confession of judgment is at or after maturity, the warrant to confess must expressly, or by necessary implication, restrict its exercise to that time if the note is to be negotiable, and that if the warrant is silent as to the time when it can be exercised, the reasonable implication must be that it can be done at any time. Most of the cases involving this general area of the law have arisen in Pennsylvania, and the Courts of that State have held that notes containing stipulations for confession of judgment without specification or limitation as to time are, like those expressly authorizing judgment prior to maturity, non-negotiable. Lester, to use of Laurelton State Bank v. Kleckner, 5 Pa.Dist. & Co. R. 342; Cox v. Shenk, 28 Pa.Dist.R. 160-161. In Miners' State Bank v. Auksztokalnis, 283 Pa. 18, 128 A. 726, 728, the Supreme Court of Pennsylvania dealt with a warrant to confess judgment which was silent as to the time of its exercise. The Court said, through Chief Judge Moschzisker: 'The note itself contains a warrant of attorney to confess judgment at any time, and this, as admitted by both sides, makes it a nonnegotiable instrument.' In Shinn v. Stemler, 158 Pa.Super. 350, 45 A.2d 242, the warrant to...