Van Diest v. Towle

• Citation: 179 P.2d 984,116 Colo. 204
• Decision Date: 07 April 1947
• Docket Number: 15593.
• Parties: VAN DIEST v. TOWLE.
• Court: Supreme Court of Colorado

179 P.2d 984

116 Colo. 204

VAN DIEST v. TOWLE.

No. 15593.

Supreme Court of Colorado, en Banc.

April 7, 1947

Rehearing Denied April 28, 1947.

Action by Harry E. Towle against E. C. Van Diest to recover on a note. To review a judgment for plaintiff, defendant brings error.

Reversed with instructions.

Appeal from District Court, El Paso County; John M Meikle, judge.

H. T McGarry and Ben S. Wendelkin, both of Colorado Springs, for plaintiff in error.

David P. Strickler and Thomas M. Burgess, both of Colorado Springs and Donald C. McCreery and Paul W. Lee, both of Denver, for defendant in error.

STONE Justice.

Van Diest gave his demand promissory note to Towle. Nearly 13 years after the first and only payment of interest thereon, this suit was instituted for judgment on the note and foreclosure of the collateral security then held. Van Diest pleaded the statute of limitations. The case was tried entirely upon written evidence consisting of the note, partial correspondence between the parties, exhibits concerning corporate reorganization and stipulations. The trial court determined that the evidence established an acknowledgment by the defendant of the indebtedness together with an implied promise to pay the same within six years prior to the institution of the suit, and rendered judgment in favor of Towle. Whether there was such acknowledgment and implied promise is the sole issue requiring our attention.

As collateral security for the $55,000 note here involved, Van Diest deposited notes of General Service Corporation of equal face value secured by 928 shares of the common capital stock of the Utah Ice and Storage Company. General Service Corporation owned 5,215 shares, being all, except directors' qualifying shares, of the stock of the Utah Company, and owned all or a controlling interest in the stock of several other service corporations. Nearly six years after the execution of Van Diest's note, proceedings were instituted in the United States District Court of the District of Colorado for reorganization of General Service Corporation and some of its subsidiaries, including the Utah Company. The plans of reorganization disclose that, in addition to several notes of those corporations held by Van Diest and Towle separately, they held, either jointly or severally, notes of General Service Corporation in the sum of $392,000 principal, upon which there was accrued interest in large amount, which were listed as 'notes to officers and stockholders.' All the Utah Company stock except directors' qualifying shares were pledged as collateral with the notes of General Service Corporation. Under the plan of reorganization of the corporations a portion of this stock was surrendered for distribution to bondholders and the remainder for exchange for voting trust certificates. Towle forwarded the total of 3,432 shares for such distribution and exchange of which only 928 shares were held as collateral with the Van Diest note. From this it would appear that the General Service Corporation notes held by Towle as collateral to the Van Diest note constituted only a small part of his total holdings of those notes. Towle resided in New York City and Van Diest in Colorado Springs. Van Diest was president of General Service Corporation and represented Towle as his attorney in fact in his acceptance of both the original and amended plan of corporate reorganization of the companies. In the reorganization no claim was filed on these notes.

The first letters offered by plaintiff, and held by the court as evidencing a promise by Van Diest to pay his note, were written a few days prior to the court approval of the plans of corporate reorganization. Van Diest wrote Towle as follows:

'If the attorneys are to be believed, the order for the release of General Service from its receivership will be signed on the tenth which will be Friday of next week. I am planning then to have the directors' meeting of General Service at which time the directors will accept the exchange of notes for preferred stock, as I have heretofore written you, and also authorize the proposals to the subsidiary companies for the transfer of the physical properties of the subsidiaries, Montana Service Corporation, Fairbury Service Company, and Hygienic Service Company, to General Service.

'Inasmuch as it is advisable to make the exchange of notes for General Service stock as speedily as possible after the release it would be appreciated if you could have your notes and stock here for such exchange promptly after the directors' meeting has been held.

'In making this exchange I would appreciate your advising me if you prefer to have the stock certificates made out as nearly as possible in the amounts applicable to each note, or to combine the amounts in the proportions as I have heretofore written you. We can handle it, of course, as you prefer.

'I have all matters pretty well prepared, including the waivers of notice and proposed minutes of directors' meetings, deeds of transfer, etc., so that no delays need occur on that account, and we are now figuring the amount of each class of stock which will be applicable to each note and the interest thereon. With this completed the formalities can be quickly further developed.

'As soon as possible after these matters have been carried out I shall have to go to Fairbury to arrange for a locker storage room to be built within the season ice storage room, an element of construction which does not involve great expense, perhaps $500 or $600, but which should be a continual and material source of revenue, particularly during the winter months when we need it most.

'I also expect to go on to Chicago to work out the ice contract situation, I hope for the long future, with the Rock Island and possibly obtain some new business from the Union Pacific.

'As I believe it would be to our distinct advantage and to assist in avoiding possible contingencies, I would like to be in a position to do all of these things very speedily after the release of General Service.

'If you approve of these actions I would appreciate the transmittal of your notes and collateral pertinent thereto, the receipt of which I shall acknowledge immediately upon arrival.

'In that connection it will not be necessary to send me my note to you but it will be necessary to send the General Service notes, with the collateral, attached to that note.'

Towle answered:

'* * * With reference to your letter of the 2nd, in the matter of exchanging my General Service notes for shares of stock, a combined certificate will be satisfactory to me.

'The Auditor calls to my attention that your note to which you refer in the last paragraph of $55,000. is secured by 968 shares of Utah Common V.T.C.s plus 3 General Service notes totaling the amount of the face of yours. What was your idea of collateral to secure your note in lieu of that now securing it?'

In reply to that inquiry Van Diest wrote:

'* * * With reference to my notes secured by General Service notes which are collateraled by Utah stock, naturally the preferred stocks accruing to me on the notes of General Service which you hold as collateral would then become the collateral to my note. This will apply to the preferred stock, both A and B, to be issued on these notes, both for principal and accrued interest. I trust that this will be satisfactory. Just as soon as I have the stock issued which can be done immediately after I receive the notes from you I will forward to you the corresponding General Service preferred stock to attach to my note to you.'

A few days later Van Diest forwarded to Towle powers of attorney with a letter stating that they are 'to be attached to the stock of General Service Corporation standing in my name which I have today sent you applicable as collateral to my notes.' The trial court held that these letters and the exchange of collateral each evidenced a promise to pay the note and removed the bar of the statute.

What are the rules by which to test this evidence? The original statute, 21 James I, which is the basis of all our statutes of limitation, made no exception in case of subsequent promise, acknowledgment, or part payment by the debtor. Nor does our Colorado statute, today, make such exception. However, at a very early date, by judicial legislation, there was engrafted on the English statute an exception, that in an action of assumpsit a new promise to pay removed the bar of the statute; and a little later this exception was extended to include an acknowledgment of the debt, on the theory that an acknowledgment was an implied promise to pay; and then it was still further extended to include a part payment which, it was held, would remove the bar, on the theory that a part payment constituted an acknowledgment. Later, the statute was still further undermined by Lord Mansfield who held that, the slightest word of acknowledgment will take it out of the statute. Trueman v. Fentom, 2 Cowp. 544. For a time this extreme rule was followed, but it was frequently criticised as unwise both by judges and barristers, and was finally repudiated in A'Court v. Cross, 3 Bing. 329, where the court held, 'that if there be anything said at the time of the acknowledgment to repel the inference of a promise, the acknowledgment will not take a case out of the statute of limitations.' This rule has since been followed in England. Kelly, Code Stat. of Lim., p. 139; Angell on Limitations (6th Ed.), p. 222; 1 Wood on Limitations (4th Ed.), p. 347, sec. 65, and p. 356, sec. 67.

Even Before the change of rule in England, Chief Justice Marshall in Clementson v. Williams, 8 Cranch 72, 3 L.Ed. 491 declared that the statute of limitation was entitled to the same respect as other statut...