W.H. Barber Co. v. Hughes

• Citation: 63 N.E.2d 417,223 Ind. 570
• Decision Date: 09 November 1945
• Docket Number: 28104.
• Parties: W. H. BARBER CO. v. HUGHES et al.
• Court: Indiana Supreme Court

63 N.E.2d 417

223 Ind. 570

W. H. BARBER CO. v. HUGHES et al.

No. 28104.

Supreme Court of Indiana

November 9, 1945

Appeal from Pulaski Circuit Court; Robert E. Thompson, Judge.

Robert C. Hardy, of Chicago, Ill., and Roland Obenchain, of South Bend, for appellant.

Forrest E. Hughes and Charles E. Hughes, both of Elkhart, and W McDowell, of Winamac, for appellees.

RICHMAN Chief Justice.

The court below denied recovery sought by appellant against appellees Hughes on an Illinois judgment taken pursuant to a cognovit contained in a promissory note. Indiana statutory law, § 2-2904, 2-2905 and 2-2906, Burns' 1933, Secs. 399 400, 398, Baldwin's 1934, forbids the execution of such a power and refuses to recognize it as a waiver of process in a suit upon the note. Illinois has no such statute and there judgments by confession on cognovit notes are valid. Appellant relies upon the full faith and credit clause of the United States Constitution and appellees upon the Indiana statutes. The questions arise upon assignments of error in conclusions of law upon facts specially found. We have condensed and rearranged the findings, sometimes quoting, as follows:

Appellant is a Delaware corporation, licensed to do business in Illinois with its principal office and place of business in Chicago. Appellees Hughes are brothers and partners, residing in Indiana. Prior to 1935 they began to buy petroleum products from appellant and were its regular customers until the execution of the note in question. 'A substantial part, if not all, of the deliveries of such products' by appellant occurred in Illinois. On September 30, 1940 appellees owed appellant more than $8200.00 past due on an open account for petroleum products theretofore purchased, all of which had been delivered in Illinois. On that date Royal Hughes conferred in Chicago with appellant 'for the purpose of making a settlement of the account * * * but they arrived at no agreement of settlement.' On October 3, 1940, he returned to Chicago 'with the further view of making settlement of the Hughes' account', and in the conference that ensued, Wilbur Hughes not being present, appellant proposed that appellees: 'immediately pay not less than $900.00 in cash on said account and that the balance remaining after such cash payment be settled and satisfied by a note in the principal sum of $7,310.81 payable to the order of plaintiff at its office in the State of Illinois bearing the signatures of the defendants Hughes payable in monthly installments and with final payment on June 15, 1941, with interest at five percent per annum. The defendant Royal W. Hughes approved said proposal of settlement and agreed that if the proposal was satisfactory to his brother Wilbur F. Hughes the defendants Hughes would give to the plaintiff their promissory note in the principal sum of $7,310.81 payable as follows: $810.81 on October 15, 1940; $500.00 on the 15th day of November and December respectively, 1940, and $500.00 on the 15th day of January, February, March, April and May respectively, 1941, and $3000.00 on June 15, 1941, with interest at the rate of five percent.' The following day appellees 'paid to plaintiff in cash $921.89 which was applied on said account.' It does not appear how such cash was delivered. On the same day 'in conformity with the proposition and agreement,' above quoted, the note in question, without signatures, was mailed by appellant in Chicago to appellees in Indiana. It was received October 5, and on October 7 was signed by both partners in Indiana and mailed to appellant in Chicago, postage prepaid, where it was received on October 8. The note is dated October 4, 1940, but the place of its signing does not appear thereon. It contains the ordinary promise to pay the principal sum, in installments, with interest and attorneys fees, followed by the cognovit running to 'any attorney of any court of record', and finally the makers' signatures. Finding No. 15 states that:

'Upon receipt of said note set out in finding number twelve and after ascertaining that said note was satisfactory in form, that it had been signed by both the defendants Hughes and contained provision for confession of judgment and was payable in Illinois with final payment on June 15, 1941, the plaintiff accepted said note and gave value therefor by applying the same to the payment and satisfaction of the then balance of the open account owing the plaintiff by the defendants Hughes.'

Thereafter payments were made, reducing the principal to $3,000, due June 15, 1941, when the note was transferred by assignment to appellee Central West Oil Corporation. On September 17, 1943, the unpaid principal was $1,900, on which date the holder took judgment by confession, solely pursuant to the cognovit, in the Municipal Court of the City of Chicago, which is a court of record of general jurisdiction. The judgment was thereafter assigned by appellee Central West Oil Corporation to appellant and is wholly unpaid.

The court finds as a fact that the law of Illinois permits the execution of this form of obligation, suffers judgment to be taken thereon without summons and the only difference between such a judgment and one in a suit brought by summons is that the waiver of summons, pursuant to the power given in the cognovit, is recognized as rendering further process unnecessary. It is further found that:

'In 1934 and subsequent years, the plaintiff and the defendants, Hughes, mutually intended that their contractual relations and all matters incident thereto be governed and controlled by the laws of the State of Illinois.'

The statutes relied upon by appellees are aimed at the cognovit, not the promise to pay. They provide that:

'It shall be unlawful to execute or procure to be executed as a part of or in connection with the execution of any negotiable instrument * * *, and before a cause of action thereon shall have accrued, any contract, agreement, provision or stipulation giving to any person * * * a power of attorney or authority as attorney for the maker * * *, in his name to appear in any court of record, and waive the service of process * * * to confess judgment on such instrument * * *. Any and all (such) contracts * * * shall be void.' § 2-2904(399), supra.

The following section provides in substance that no court of this state shall 'aid or enforce the collection of any judgment which may be rendered upon any judgment taken in any other state' founded on such a cognovit. The other section, § 2-2906, sec. 398, makes it a misdemeanor, punishable by fine up to $500 and imprisonment up to six months, to procure or conspire to procure, such a cognovit or to attempt within this state to recover upon any judgment obtained elsewhere 'based upon any such instrument.'

The note in question was negotiable under the laws of both Illinois and Indiana, each of which has adopted the Uniform Negotiable Instruments Law. The cognovit provision did not destroy its negotiability. § 19-105, Burns' 1933, Sec. 12822, Baldwin's 1934. Delivery 'for the purpose of giving effect thereto' was necessary to make it a completed contract. § 19-116, Burns' 1933, Sec. 12833, Baldwin's 1934. Nor was it complete without the giving of value, which means 'any consideration sufficient to support a simple contract.' § 19-202, Burns' 1933. Sec. 12842, Baldwin's 1934.

We have held that after the execution of such a note the cognovit paragraph may be stricken out by the payee without destroying his right to judgment on the note in an action in this state begun by summons. Paulausky v. Polish Roman Catholic Union of America, 1942, 219 Ind. 441, 39 N.E.2d 440. But this does not mean that the cognovit is separable for all purposes. Nor do the two parts of the one instrument necessarily become effective at the same time. The effective date of the cognovit may not precede that of the promise to pay, for a valid power to confess presupposes an obligation to confess. But the consent of the attorney, which gives life to the power, may occur after the promise to pay has become obligatory and even has been breached. This seems to be true under general principles of agency, which require the consent of the agent to give effect to his appointment. Department of Treasury v. Ice Service, Inc., 1942, 220 Ind. 64, 41 N.E.2d 201; Lincoln Nat. Bank & Trust Co. of Fort Wayne v. Parker, 1941, 110 Ind.App. 1, 34 N.E.2d 190, 37 N.E.2d 5; Central Trust Co. of New York v. Bridges et al., 1893, 6 Cir., 57 F. 753; In re Fitzpatrick's Estate, 1940, 17 N.Y.S.2d 280; Bertrand et al. v. Mutual Motor Co., 1931, Tex.Civ.App. 38 S.W.2d 417; Restatement of Law of Agency, §§ 1-a and 15; 2 Am.Jur. Agency, § 21.

The case of Egley v. T. B. Bennett & Co., 1924, 196 Ind. 50, 145 N.E. 830, 40 A.L.R. 436, superseding 139 N.E. 385 and 144 N.E. 533, was the subject of much comment in the law magazines. Its holding, and the dictum hereinafter referred to, may be harmonized with the case at bar on the theory that the cognovit became an Illinois contract by assent of the attorney evidenced by his exercise of the power in Illinois. Commenting upon the case in 19 Ill.L.Rev. 584, Dean Gavit said:

'There would certainly seem to be no objection to a citizen of Indiana appointing an agent in Illinois to do an act which the law of Illinois sanctions. Had the defendant executed the note in Illinois the judgment would have been valid; had he employed an Illinois attorney to act for him in confessing judgment in Illinois the judgment would have been valid. It seems, therefore, no proper concern of the state of Indiana that the preliminary step was taken in Indiana. The appointment was contingent upon an event to happen in Illinois and the act authorized was to be performed in Illinois.'

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