Steele v. Vanderslice

• Decision Date: 29 December 1961
• Docket Number: No. 6725,6725
• Citation: 90 Ariz. 277,367 P.2d 636
• Parties: Warren H. STEELE, and Clara May Steele, husband and wife, Appellants, v. Marcus C. VANDERSLICE, and Dorothy B. Vanderslice, husband and wife, Appellees.
• Court: Arizona Supreme Court

Page 636

367 P.2d 636

90 Ariz. 277

Warren H. STEELE, and Clara May Steele, husband and wife, Appellants, v. Marcus C. VANDERSLICE, and Dorothy B. Vanderslice, husband and wife, Appellees.

No. 6725.

Supreme Court of Arizona, In Banc.

Dec. 29, 1961.

Ellis & Sult, Eloy, and Richard G. Clemans, Casa Grande, for appellants.

Marvin Johnson, Phoenix, for appellees.

ROSS F. JONES, Superior Court Judge.

Plaintiffs, appellees herein, brought an action against defendants, appellants herein, on a promissory note secured by a mortgage on Pinal County real etate in the principal sum of $8,500. The note also provided for interest and reasonable attorneys' fees. Defendants' Answer admits the execution of the note and a mortgage in the principal sum of $8,500, and admits that they have paid no sums on the note; and allege tender of payment to plaintiffs. Defendants further allege that checks were substituted for the note, and therefore plaintiffs are not entitled to interest or attorneys' fees. Defendants' Answer sets forth that the note was given as a part of the purchase price for certain real and personal property sold to the defendants by plaintiffs, and that defendants were induced to purchase the property by reason of false and fraudulent representations made to defendants concerning the capacity of irrigation water from three wells, the pumping equipment on the premises, and the availability of tail or waste water. Defendants also filed a counterclaim pleading fraud and alleging damages in the sum of $20,699.09. Plaintiffs' Answer to defendants' counterclaim denied any false or fraudulent representations.

The case came to trial before the court and jury on the 21st day of February, 1959. At the close of all of the testimony the court sustained plaintiffs' motion for directed verdict on plaintiffs' complaint, and submitted to the jury the question of fraud on defendants' counterclaim. The jury returned a verdict for plaintiffs and against the defendants.

The facts developed upon the trial of the issues are as follows: In August of 1955 plaintiffs and defendants entered into negotiations for the sale by plaintiffs to defendants of one-half section of land on which were 83 acres of growing cotton, and certain farm equipment and machinery for the sum of $69.699.09. The transaction was consummated on September the 2nd, 1955, through the Surety Title and Trust Company of Florence (hereinafter referred to as Trust Company).

As a part of the purchase price defendants executed the promissory note heretofore mentioned payable on the 1st day of March, 1956. On or about March the 1st, 1956, defendants gave to plaintiffs a check postdated in the amount of $8,712.50, representing the principal and interest to that date.

Defendants learned of some controversy between the plaintiff and two real etate brokers over commissions claimed to be due, and defendants stopped payment on this check. Later defendants gave to plaintiffs two checks, defendants' Exhibit A, one for $8,008.32 and one for $704.18, postdated March the 14th, 1956, payable to Trust Company and Marcus Vanderslice (plaintiff), which checks were not endorsed by plaintiffs until or about May 15, 1956, and were then deposited to his account on May the 15th, 1956. Sometime prior thereto defendants had stopped payment on both checks. On March the 12th plaintiff wrote the following letter (defendants' Exhibit B) to the Surety Title and Trust Company:

'March 12, 1956

'Surety Title and Trust Company

Florence, Arizona

'Gentlemen:

'I have received from you the original note dated September 2, 1955 from Warren H. Steele, Jr. and Clara May Steele to M. C. Vanderslice and Dorothy B. Vanderslice in the amount of $8,500.00.

'Mr. Steele has given me a check dated March 14, 1956 in full payment of this note, including interest at 5% from date of note to March 1, 1956 which would be $212.50.

'Yours very truly,

/s/M. C. Vanderslice

M. C. Vanderslice'

Sometime prior to March the 12th, 1956, plaintiffs surrendered the original note to the defendants upon receipt from the defendants of the two checks upon which payment was later stopped.

Defendants' first assignment of error is to the directed verdict in favor of the plaintiffs and against the defendants on plaintiffs' complaint for the reason that under the evidence before the court and the jury the defendants were entitled to have the jury pass upon the question as to whether the checks given by defendants to the plaintiffs operated to discharge the promissory note and substitute the checks therefor.

This assignment presents two issues. The first is whether the note from the defendants to the plaintiffs was discharged by the giving of two checks dated March 14, 1956, together with the letter from the plaintiffs to the Trust Company showing receipt of the checks in full payment of the note. The second is whether the trial court erred in directing a verdict in favor of the plaintiffs on this issue.

For a check to operate as an unconditional discharge of a note there must be: (1) payment on the check; or (2) an express agreement by all the parties to accept the check as unconditional payment; or (3) a novation.

Taking these seriatim:

1. The evidence is uncontradicted that no payment was made on the note and no payment was made on the checks by defendants. In fact the defendants withdrew the necessary funds and put a stop payment order on the checks at their bank and thereby made payment impossible. When a negotiable check is exchanged for a negotiable note the exchange is complete when delivered unless the check is not paid. Miller v. Marks, 46 Utah 257, 148 P. 412.

2. The defendants contend that the check was received in absolute payment and they further contend that the release of the note, the letter to Trust Company from plaintiffs and the delay in presenting the check for payment is evidence of such. We stated in Empire-Arizona Copper Co. v. Shaw, 20 Ariz. 471, 181 P. 464, 4 A.L.R. 1229:

'The second statement of error, towit, 'The court erred in rendering said judgment because there is no evidence of any valid promise on the part of appellants to make good said check to appellee,' is set forth upon the theory that the appellee's debt, owing by appellants, was paid, satisfied and discharged by them by the issuance of a check to their creditor. Such is not the law, unless, as a fact, the creditor accepts the check as final payment.' 20 Ariz. 471, 475, 181 P. 465.

The foregoing seems to be the rule recognized by courts everywhere. Little v. Mangum, 17 F.2d 44 (4th Cir. 1927); Kady v. Schutte, 72 N.D. 228, 5 N.W.2d 721; Lloyd Mortgage Co. v. Davis, 51 N.D. 336, 199 N.W. 869, 36 A.L.R. 465; Treadwell v. El Reno Mill & Elevator Co., 160 Okl. 277, 16 P.2d 62; Advance-Rumley Thresher Co., Inc., v. Hess, 85 Mont. 293, 279 P. 236; Turner v. Pugh, 195 S.W.2d 374 (Tex.Civ.App.1946), rev'd on other grounds, 145 Tex. 292, 197 S.W.2d 822, 172 A.L.R. 707; Commercial Bank of Booneville v. Varnum, 176 Mo.App. 78, 162 S.W. 1080; Morris v. Cleve, 197 N.C. 253, 148 S.E. 253; Bassett v. Merchants' Trust Co., 118 Conn. 586, 173 A. 777, 93 A.L.R. 1008. See 10 C.J.S. Bills and Notes § 443, p. 971. If the check is not paid the party may return it and sue on the original note. Grant v. Reed, 165 Kan. 27, 193 P.2d 214; Baker-Evans Grain Co. v. Ricord, 126 Kan. 107, 267 P. 14. We hold, therefore, that a check given in exchange for a negotiable instrument is a conditional payment only unless there is an express agreement to the contrary.

Defendants contend that the letter from plaintiffs to the Trust Company as escrow agent is an express agreement to accept the checks as absolute payment of the note. The words in the second paragraph of the letter, quoted heretofore, '* * * in payment of the obligation' must be construed in their ordinary use. In the opinion of the Court and apparently of the trial court, such words meant no more than a mere receipt or acknowledgement of the checks and was not to be considered as an unconditional payment, and to be binding upon presentation, if the checks were dishonored. This is in accord with the rule that all payments of this character are presumed to be conditional payments, i. e. conditional upon the payment of the check when presented to the bank. National Life Ins. Co. of Vermont v. Goble, 51 Neb. 5, 70 N.W. 503; Weaver v. Nixon & Wester, 69 Ga. 699 (1882); Advance-Rumley Thresher Co., Inc. v. Hess, supra; Kalman v. Treasure County, 84 Mont. 285, 275 P. 743.

With respect to the delay in presenting the checks for payment, the defendants claim there were sufficient funds for payment in defendants' bank for about 18 days after the checks were written and prior to the stop payment order and withdrawal of said funds and that 'If the plaintiffs did not get their money at that time it was their own fault * * *'. Such contention is untenable. An unreasonable delay, omission, laches or negligence in presenting a check for payment by the payee, or to give notice of its dishonor, does not exonerate the maker of the check, except to the extent the drawer has suffered some actual loss or damage through such delay in the presentment of the check or in giving notice of its dishonor. Williams v. Braun, 14 Cal.App. 396, 112 P. 465; Deal v. Atlantic Coast Line R. Co., 225 Ala. 533, 144 So. 81, 86 A.L.R. 455; 3 Daniel, Negotiable Instruments § 1772 (7th ed. 1933); 8 Am.Jur. Bills & Notes § 753, p. 417.

The drawer of a check is not damaged by delay in presenting it for payment where he has no funds, insufficient funds or has withdrawn funds in the bank for its payment. In re Hore's Estate, 220 Minn. 365, 19 N.W.2d 778, 160 A.L.R. 1064; Kinyon v. Stanton, 44 Wis. 479, 28 Am.Rep. 601; Conroy v. Warren, 3 Johns.Cas., N.Y., 259, 2 Am.Dec. 156; Philadelphia L. Ins. Co. v. Hayworth, 296 F. 339 (4th Cir. 1924); Industrial Trust, Title & Sav. Co. v. Weakley, 103 Ala. 458, 15 So. 854, 49 Am.St.Rep. 45. Where the...