Wright v. Hage

• Citation: 330 P.2d 342,214 Or. 400
• Parties: Felix T. WRIGHT and Dorothy R. Wright, doing business under the name and style of Silver Falls Hatchery, Respondents, v. Roy M. HAGE and Zeima Hage, Appellants.
• Decision Date: 15 October 1958
• Court: Supreme Court of Oregon

Page 342

330 P.2d 342

214 Or. 400

Felix T. WRIGHT and Dorothy R. Wright, doing business under

the name and style of Silver Falls Hatchery, Respondents, v. Roy M. HAGE and Zeima Hage, Appellants.

Supreme Court of Oregon, Department 1.

Argued and Submitted March 11, 1958.

Decided Oct. 15, 1958.

Norman K. Winslow, Salem, argued the cause and filed a brief for appellants.

Quinten B. Estell, Silverton, argued the cause for respondents. With him on the brief was Bruce Williams, Salem.

Before PERRY, C. J., and WARNER, McALLISTER, and SLOAN, JJ.

McALLISTER, Justice.

This is an action brought by Felix T. Wright and Dorothy R. Wright, his wife, doing business as Silver Falls Hatchery, as plaintiffs, against Roy M. Hage and Zelma Hage, his wife, as defendants. The action is upon a promissory note executed by defendants on June 30, 1949, in the sum of $2,297 payable to the plaintiffs.

The answer of the defendants admitted the execution of the note and the non-payment thereof but alleged an affirmative defense of recoupment arising out of the transaction in which the note was given. After both parties had rested, the plaintiffs moved for a directed verdict and the trial judge stated that he intended to allow the motion. However, at the request of the defendants, made pursuant to ORS 18.140, ¹ the court submitted the case to the jury. The jury returned a verdict for the defendants. Plaintiffs then filed a motion for a judgment in their favor notwithstanding the verdict. The motion was allowed and a judgment was entered in favor of the plaintiffs for the full amount of the note, interest, costs and attorney's fees. From this judgment the defendants appeal.

In the fall of 1946 the plaintiffs were engaged in the hatchery business near Silverton and planned to engage extensively in the hatching of turkey eggs in 1947. The defendants owned a farm in the Waldo Hills district of Marion county and as part of their farming operations raised turkeys.

In order to assure a supply of eggs for the 1947 hatching season, Felix Wright, on three or four occasions during the fall of 1946, urged defendants to buy additional turkeys from plaintiffs to produce eggs for the hatchery. Defendants testified that they were reluctant to make the deal because the 'turkey business didn't look too good.' However, it was finally agreed that defendants would purchase from plaintiffs 580 turkeys at a price of $4,966 and give plaintiffs their promissory note in payment of the purchase price. Defendants contend that as a part of the same transaction and as part of the consideration for the execution of the note, plaintiffs agreed to purchase all of the eggs from said turkeys and other turkeys which defendants then owned and to pay therefor not less than 25cents per egg. The payments for the eggs delivered were to be credited on the note. Plaintiffs deny that they agreed to buy all of the eggs produced by the defendants or to pay more than the market price at the time of delivery.

The plaintiffs delivered the 580 turkeys to defendants late in 1946 and in payment therefor took the defendants' note in the sum of $4,966, dated January 1, 1947, payable to plaintiffs 12 months after date.

The defendants commenced delivering eggs to plaintiffs in February, 1947 and continued until about March 8th when plaintiffs notified defendants that because the market was glutted they would no longer take the eggs. Defendants then attempted to market their eggs elsewhere and were able to sell some eggs to another hatchery at a lesser price. Plaintiffs thereafter again purchased eggs from defendants for a short time but at a price of 22cents per egg. About April 6, 1947, plaintiffs again refused to take eggs except at the still lower price of 16cents per egg. Since that price was less than the cost of production and defendants were unable to sell the eggs to other hatcheries for any better price, they killed and sold their turkeys.

The amount due on the note was reduced to $2,797 by credits for eggs delivered to plaintiffs by defendants. Defendants alleged that they would have produced and delivered to plaintiffs an additional 24,000 eggs during the 1947 hatching season and were damaged in the sum of $3,300 by plaintiffs' breach of their agreement to purchase said eggs.

Because of the depressed turkey market, plaintiffs needed money and had to borrow from the Stayton Branch of the First National Bank of Portland. As part of the security for this loan, plaintiffs on June 18, 1947, assigned defendants' note to the bank. On the same date the bank notified defendants of this assignment and directed that future payments on the note be made to the bank.

There is a dispute as to how many times the original note was renewed but it appears from the records of the bank that renewal notes were executed on January 1, 1948, January 1, 1949 and the note sued on dated June 30, 1949. A payment of $500, plus the accrued interest, was made to the bank when the last renewal note was executed. This payment reduced the debt to $2,297.

It is admitted that the note was assigned to the bank before maturity as collateral security under circumstances that made the bank a holder in due course. See ORS 71.027 and 71.052. Plaintiffs contend that their debt to the bank was paid on April 13, 1949 and that thereafter the bank held the note for collection only. Defendants do not concede that the debt due the bank by the plaintiffs was paid on April 13, 1949, although the records of the bank so indicate. We note that the instrument sued on was endorsed in blank by the payees, which seems inconsistent with the claim that the bank was holding the note for collection only. Defendants contend that, in any event, they were never notified that the bank had been paid and in the absence of such notice or knowledge, had a right to assume that the bank continued to hold in due course.

The bank retained the last renewal note until January 18, 1952, when it was delivered to plaintiffs. The plaintiffs then held the note but made no attempt to collect it until this action was filed on May 15, 1953. At that time the statute of limitations had apparently barred any independent action by defendants based on the alleged breach of the contract by plaintiffs. The defense was available, however, by way of recoupment, as the trial court properly ruled. See Krausse v. Greenfield, 61 Or. 502, 123 P. 392 and Caples v. Morgan, 81 Or. 692, 696, 160 P. 1154, L.R.A.1917B, 760.

Defendants' brief contains two assignments of error. The first challenges the procedure followed by the trial court in entering the judgment n.o.v. We find that the procedure followed, although irregular, did not prejudice the rights of defendants and deem it unnecessary to consider the matter further in this opinion.

By their second assignment of error, defendants urge that the court erred in entering judgment for plaintiffs for the following reasons:

(1) that the defenses available to the maker against an original note are not waived by renewing it;

(2) that there can be no waiver of the defenses available to the maker against the original note if it is renewed while in the hands of a holder in due course;

(3) that the bank held the original and renewal notes as a holder in due course and defendants had no notice that the bank ceased to hold in that capacity if such was the fact; and,

(4) that plaintiffs did not plead waiver in their reply to defendants' plea of recoupment.

The authorities are not in harmony as to whether the execution of a renewal note cuts off valid defenses available against the original note. So far as we have discovered, the only Oregon case in point is Casner v. Hoskins, 64 Or. 254, 266, 128 P. 841, 130 P. 55. In that case the court said:

'* * * Thus if the giving of a note was induced by fraud, or there was a failure or want of consideration, all subsequent renewals of the written promise to pay at a stated time a specified sum of money are open to the same defense. Adams v. Ashman, 203 Pa. 536, 53 A. 375. A contrary rule would impose excessive burdens on the maker of a promissory note which had been renewed in compliance with the importunities and threats of an exacting payee.'

If the foregoing general rule is applicable in this case, the defendants were entitled to set up their defense of recoupment and the court erred in entering judgment for the plaintiff. When the trial judge advised counsel that he intended to allow plaintiffs' motion for a directed verdict he assigned as his reasons (1) that defendants when executing the renewal note had actual knowledge of their defense to the original note, and (2) that when the note sued on was executed, the bank was holding the note for collection only. It is obvious that the learned trial judge concluded that the Casner case was distinguishable or was contrary to the weight of authority.

The Casner case may be distinguished on the basis that it did not discuss the difference between want of consideration and failure of consideration, either total or partial, and did not mention the element of knowledge of the defenses...