Townsend v. Adams
| Decision Date | 08 January 1929 |
| Docket Number | 39242 |
| Citation | 222 N.W. 878,207 Iowa 326 |
| Parties | H. M. TOWNSEND, Appellant, v. W. E. ADAMS et al., Appellees |
| Court | Iowa Supreme Court |
Appeal from Dallas District Court.--W. S. COOPER, Judge.
Action upon a promissory note. There was a directed verdict for the defendants, and the plaintiff appeals.
Reversed.
Harry Wifvat, for appellant.
Wilson & Harris and Howard & Sayers, for appellees.
The negotiability or nonnegotiability of a note is the only question presented for determination. In words and figures that instrument is as follows:
This document was signed by defendants-appellees on the first day of March, 1920, and on that date delivered to F. E. Smith, the payee named therein. Afterwards, but before maturity, said paper was transferred, through indorsement and delivery, by Smith to the Peoples Trust & Savings Bank. That transferee, then, before maturity, again indorsed and delivered the note to plaintiff-appellant. By its terms, the written obligation provided for payment on March 1, 1925.
Appellant brought suit thereon November 13, 1926, claiming to be a holder in due course for a valuable consideration, without notice of any outstanding defenses to which the same was subject. As an answer to such cause of action, appellees, as defendants, contend that the instrument is nonnegotiable, and therefore subject to their claim that, in March, 1925, they executed, made payable, and delivered to the People Trust & Savings Bank aforesaid a new note for $ 6,000 in full payment of the one in controversy.
If the instrument on which suit is brought is negotiable, appellees' defense must fail; if, on the other hand, the note is nonnegotiable, it may prevail. Appellees predicate nonnegotiability upon that part of the above-named note which reads to this effect:
"And we consent and agree that after this obligation shall become due the time of payment thereof may be extended from time to time by any one or more of us, and in case of such extension and notwithstanding the same, we shall and will continue liable thereon as if no such extension had been so made."
Does that language produce nonnegotiability? We think not.
I. Statutes in effect at that time contained the following provisions: Supplement 1913, Section 3060-al (Section 9461, 1924 Code):
"Determinable future time," according to Section 3060-a4 of the same Supplement (Section 9464, Code of 1924), includes: "* * * On or before a fixed or determinable future time specified [in the note]. * * *" Regarding this, the instrument in the case at bar embodies the succeeding phraseology: "On the 1st day of March, 1925, for value received, we promise to pay to the order of F. E. Smith," etc. Such "future time" is thereby definitely and determinably fixed. So, unless subsequent words or phrases contained in the instrument nullify that result, negotiability is established.
II. It is said, however, that the specific provision for extension above quoted does nullify and overcome the otherwise "fixed and determinable" future date for maturity, because, it is asserted, the permissive extension makes uncertain when payment can be made or demanded.
Well may the theory thus be formulated, for therein the criterion is to be found. Solution for this problem will have been discovered when it is determined on which side of that demarcation line is the language of this particular note. Those words authorizing the extension must be such in their meaning as to make it impossible either, first, for the makers or other obligors to pay on March 1, 1925, or, second, for the holder to require payment at maturity. Hence, if on that date payment can be made by the maker or obligor, on the one hand, and, on the other, required by the holder, without an intervening extension, then certainty exists concerning the "fixed or determinable future time." Navajo County Bank v. Dolson, 163 Cal. 485 (126 P. 153); Stitzel v. Miller, 250 Ill. 72 (95 N.E. 53). See, also, First Nat. Bank v. Stover, 21 N.M. 453 (155 P. 905); Longmont Nat. Bank v. Loukonen, 53 Colo. 489 (127 P. 947); First Nat. Bank v. Buttery, 17 N.D. 326 (116 N.W. 341).
III. What, then, is meant by the stipulation for the extension, so far as it controls the maker's or obligor's right to satisfy the debt on March 1, 1925? At this juncture, some light is thrown upon the subject by the rule in this state to so interpret as to bring about negotiability, if possible. Apt language in Williamson v. Craig, 204 Iowa 555, 215 N.W. 664, is:
Within the bounds of reason, then, liberality of construction must be exercised in favor of negotiability. Consequently, it is to be found in the instant case that the maker or other debtor could pay the note and bring its existence to an end if reasonable construction will permit.
IV. To elucidate here, it is recognized that in this state an agreement permitting the holder to arbitrarily extend the time of payment before maturity, results in nonnegotiability. Precedents to that effect may be found in Cedar Rapids Nat. Bank v. Weber, 180 Iowa 966, 164 N.W. 233; Quinn v. Bane, 182 Iowa 843, 164 N.W. 788; Farmers Nat. Bank v. Stanton, 191 Iowa 433, 182 N.W. 647; Security Sav. Bank v. Capp, 193 Iowa 278, 186 N.W. 927; First Nat. Bank v. McCartan, 206 Iowa 1036, 220 N.W. 364.
Other state courts have reached a similar conclusion. Sykes v. Citizens' Nat. Bank, 69 Kan. 134 (76 P. 393); Wayne County Nat. Bank v. Cook, 73 Ind.App. 404 (127 N.E. 773); Union Stock Yards Nat. Bank v. Bolan, 14 Idaho 86 (93 P. 508); Sanderson v. Clark, 33 Idaho 359 (194 P. 472); City Nat. Bank v. Gunter Bros., 67 Kan. 227 (72 P. 842); Rossville State Bank v. Heslet, 84 Kan. 315 (113 P. 1052); Central Nat. Bank v. Engler, 112 Kan. 708 (212 P. 656). See, also, National Bank v. Dickinson, 102 Kan. 564 (171 P. 636).
While some courts have held to the contrary. De Groat v. Focht, 37 Okla. 267 (131 P. 172); First Nat. Bank v. Baldwin, 100 Neb. 25 (158 N.W. 371); Russell v. Wyant, 214 Mo.App. 377 (253 S.W. 790); Iowa State Sav. Bank v. Wignall, 53 Okla. 641 (157 P. 725).
Again, it has been further determined that, if the instrument can be extended, rather than paid at maturity, nonnegotiability results. Citizens Nat. Bank v. Piollet, 126 Pa. 194 (17 A. 603). Nowhere has there been called to our attention any decision to the effect that an instrument becomes nonnegotiable when it can be paid at maturity, even though thereafter the time may be extended. With reference to this subjectmatter, it will be found that many of the cases above cited discussed notes containing the words "before" or "after" maturity, but in each instance it was the word "before" that ruined the negotiability. Also, some of these adjudications involved a note embodying language which permitted an extension of time on the very day of payment, rather than the liquidation of the obligation itself. Each case where nonnegotiability appears, then, seems to have been controlled in that respect because the time of payment was not fixed or determinable, but at all instances remained uncertain, due to the fact that the maker or obligor might not be able to discharge the debt on the day payable.
V. On which side of this line of demarcation is the present written undertaking?
Section 3060-a85 of the 1913 Supplement (Section 9546 of 1924 Code) provides: "Every negotiable instrument is payable at the time fixed therein without grace. * * *"
According to its terms, the note in question could be paid on the first day of March, 1925. But there is added to the ordinary language thereof the following clause: "And we consent and agree that after this obligation shall become due, the time of payment may be extended." Connected as it is with the context, does "after this obligation shall become due" mean at the moment payable, or at a future time when there is default therein? "Due" has been variously defined,...
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