Birken v. Hickey

WHITING, J.

One Peter B. Dirks was the managing officer of the Dirks- Trust & Title ‘Company, hereinafter denominated the Title Company, of .which corporation one AVilliam R. Tapper, a resident of Chicago, was also a stockholder. Among the enterprises in which Dirks wa,s engaged was the loaning- of money on notes secured by chattel mortgages on cattle and horses — such notes and mortgages being .commonly spoken of as “cattle paper.” His custom was- to take such paper, either in -his own name as payee or in that of the Title Company, and then sell same to loan, companies or capitalists. Among parties to whom he thus transferred this class of paper was the McNish 'Cattle and Loan Company of Omaha, Neb., hereinafter denominated 'the McNish Company. In transferring paper to the McNish Company, if the paper ran to himself as paj^ee, he added to his own indorsement that of the Title Company. In September, 1916, Dirks died. At this time the McN'ish Company was holding at least seven of the cattle papery, which it had purchased of Dirks or of the Title Company through Dirks, all of which paper bore the indorsement of the Title Company. The McNish Company transferred these seven papers to AVillianl J. Birken, for the sole purpose of having him bring suit thereon for its benefit. Birken brought a separate action on each paper, naming as defendants the apparent maker of the note and also the Title Company and Tapper; and seeking, not only a foreclosure of the mortgage, but personal judgments against each of the defendants. He sought to hold the Title Company as indorser and Tapper as a guarantor, under a written guaranty, of the •payment of all obligations due from the Title Company to the McNish Company. Later the administrator of Dirks’ estate was made a party defendant in each case, but this fact is immaterial to any question necessarily determined upon this appeal. Trials were had to the court without a jury. Judgments were for plaintiff against all the defendants, and from such judgment, and from orders denying new trials, appeals were taken by the Title Company and Tapper. These appeals have been submitted upon one set of briefs; such briefs noting wherein the facts of any; one case are claimed to be different from those of any one or more of the others. There being dispute between the parties as to some of the facts, we have consulted the settled records and relied upon same for the true facts.

Appellants contend that the actions were prematurely brought. Respondent, in his brief, says:

“The actions were not prematurely brought because: First, the note and mortgage in each case was fictitious and fraudulent, and the liability accrued when the money was obtained; second, each mortgage authorized the holder to declare the debt due when he deemed himself insecure, and the commencement of the suits was a declaration that the amounts claimed in each case were due; and, third, under the allegations of the complaints and affidavits, the plaintiff was entitled to maintain the suits before the apparent maturity of the debt, on the ground that in each case -the deb-t was incurred for property obtained under false pretenses.”

It is true that each action was brought before the apparent maturiy of the note sued on, it being' alleged that the debt sued for “-was incurred for property obtained under false pretenses” by the Title Company, and the pleading's set forth the facts supporting this allegation of “false pretenses.” From- a reading of the complaints, it is clear that the above allegation was not inserted for the purpose of ■ pleading an essential element of the causes of action sought,to be pleaded. Respondent states in his brief that:

“While the notes and mortgages appeared valid upon their face, and certified copies of the original mortgages on file in the register’s office accompany each note, the McNish Company-acquired nothing for the money it paid Dirks, except the indorsement of the Dirks Trust & Title Company and the guaranty of Dirks and Tapper.”

[1, 2] The complaints - show that respondent knew the above facts at the time- he started these actions — he knew that at least part of the papers were forgeries, and that, as to the others, the security named in the mortgages did not exist. As a fact, as developed on the trial and as admitted by respondent in its brief, all the papers, excqrt perhaps that given by the Valley Bend Land & Cattle Company, were spurious. Upon the facts known at. the time of commencing these actions, the notes being negotiable in form, respondent could have sued for a liability which “accrued when the money was obtained” from the McNish Company. He could, in those matters wherein he then knew the paper to be spurious, have brought actions for damages based upon the breach of the indorser’s warranties that the papers were not spurious. He could, as to all the notes, have sued the. Title 'Company for money had and received, or for damages for deceit. In any of such actions, Tapper could have been made a party owing to his guaranty, but the apparent makers of the notes would not have been proper parties without allegations that they were parties to the fraud. Actions such as noted above would have been at law, and the defendants therein would have been entitled to jury trials. In such actions, except those based upon the warranties, the alleged fraud would have been an essential to the causes of action. • Any one of the actions mentioned wpuld lie at once upon the discovery of the facts and regardless of the due date of the note involved. But respondent did not see fit to bring actions based upon the alleged fraud or upon the warranties — he brought the ordinary actions for foreclosure of the chattel mortgages . exactly as though he believed all the papers to be valid, and that there was in existence security subject to foreclosure. In these actions he has sought to join the Title Company and hold it on the ordinary liability of an indorser. He has also sought to ‘hold Tapper on his guaranty. He claims the right to join the Title Company and Tapper on the ground that, though these are primarily equitable actions- to foreclose chattel mortgages, the court, as a. court of equity, has jurisdiction to adjudicate fully upon the liability of the several parties even though such liability may be legal as distinguished' from equitable. It is because of the claimed equitable nature of the actions that respondent objects to, and succeeded in having the trial court overrule, appellants’ motions for jury trials. It is thus clear that the relief, by way of personal judgments against the Title Company and Tapper, was claimed as an incident to the equitable relief sought, and that the only reason for respondent’s allegations pertaining to the false pretenses was, not to set forth a necessary element of the cause of action against some one or more of the parties thereto — it is perfectly apparent that it was not necessary for that purpose — but to plead facts showing a right to bring the actions before the debts sued on- were due, thus complying with the provisions of section 2451, Rev. Code 1919, and the holding of this court in Twine Co. v. Scott, 11 S. D. 27, 75 N. W. 273. Section 2451 provides that:

“When the debt was incurred' for property obtained under false pretenses” “a creditor may bring action on a claim before it is due and have attachment against the property of the debtor. * * *”

Respondent, therefore, cannot now be heard to contend that the actions were not prematurely brought and to base such contention upon the claim that, because of the fictitious and fraudulent character of the papers, the liability of the Title Company accrued when the money was obtained.

[3] Neither is respondent in a good position to contend that appellants’ pleas that the actions were prematurely brought, were rightfully rejected, and to base such contention upon the alleged fact that “each mortgage authorized the holder to declare the debt due when he deemed) hinqself insecure.” As regards three of the cases, this contention is clearly an afterthought — > it never occurred to respondent to make such claim until after the trial - in the circuit court. This is evidenced by the complaints themselves, which contained no allegations as to the provisions of the mortgages, and contained, as above noted, allegations which virtually confessed, but attempted to avoid the effect of,, the fact that the debts were not due. Moreover, in not one of the .seven cases, d'o the findings of the trial court advise us that there are any such provisions in the mortgages — ■ the findings are insufficient to support the judgments if respondent must rely upon the provisions which- he now refers to. It is true, however, that in four cases respondent pleaded the existence of such provisions in the mortgages, and in three of the cases pleaded an exercise of the options thereunder.

[4, 5] The well-established practice in this jurisdiction is to sustain a judgment, which the record as a whole shows to be supported by the facts, even though the trial court may have erred in the grounds for its decision. While such rule would not warrant us in sustaining a judgment rendered in an action prematurely brought — such fact having been pleaded— 3et, if from the whole record it appears that it was not prematurely brought, we should not reverse it upon a dilatory plea merely because of the want of a necessary finding or of defect in pleading, where the facts are beyond dispute. A plea that an action was prematurely brought is a plea in abatement — a dilatory plea — one that is looked on with disfavor. 21 R. C. L. 539. We think there would have been no abuse of discretion on the part of the trial court if, upon request so to do, it had allowed the complaints to have been amended to conform to proof — thus in all the cases alleging the provisions of the mort gage- — and if it had then made findings as to such provisions. It follows that reversals based solely upon the failure of the trial court to sustain such pleas in abatement, if entered without a consideration of, and reference to, these mortgage provisions, might possibl)' result in the amending of the pleadings, the making of further findings and the bringing of these causes to this court upon a new appeal with the question still open as to whether the actions were prematurely brought, thus. further delaying any determinations as to plaintiff’s rights. We have therefore concluded, inasmuch as the mortgages were in evidence and their provisions beyond dispute, to consider^ the contention of respondent that, because of such provisions, the notes were due when the .suits were brought.

The notes are by their terms negotiable. Not one suggests that tire mortgage accompanying it contains any provision that might accelerate its maturity. Four in no manner refer to- the accompanying mortgages. In four, Dirks is named as payee, and it therefore appears that on these the Title Company did not become an indorser for transfer. Four did not contain the provisions relied upon by respondent — the provisions therein beingmaterially different. The cases in which the mortgages contain the provision most favorable to respondent’s position, being cases based on notes in. which the .Title Company appears as payee, and therefore as indorser for transfer, and in which there are references to the fact that they are secured by a chattel mortgage, are the cases based on paper of the Valley Bend Land & Cattle Company and of one Nehlich. In these mortgages are to be found a provision that when—

“the second party shall deem itself insecure, then the whole of said indebtedness hereby secured shall, at the option of the legal holder or holders of said note, become due and payable at once without notice, and * * * it shall be lawful for the second party * * * to take possession [of the property] * * * and to dispose of same by sale in manner provided by law. * * *”

It is clear that, unless respondent’s contention as to the effect of the provision in this mortgage is good, we need not consider the other notes and mortgages.

[6] While courts all agree that twto writings. executed as a part of one and the same contract should be construed together, yet, in trying to determine the intent of the parties— a matter confessedly controlling in the construction of contracts— they are in irreconcilable conflict as to whether a provision in a mortgage, suoh as that above quoted, may affect the apparent maturity of the note, or whether it merely provides -a condition under which there -may be an earlier enforcement of the mortgagee’s rights under the mortgage. 3 R. C. L., § 436, p. 1215; 8 C. J. 199.

. We are satisfied that the better reasoning supports the holding that, unless the note specifically refers to- the provision in the mortgage and to its terms, thus clearly rendering the note non-negotiable, the provision of the mortgage should not •be held to affect the note. To hold otherwise disregard's -the clear intent of the parties to give and to receive a negotiable note. If we hold the terms of the notes before us to be modified by this provision in these mortgages, by so doing we render the note,s non-negotiable. This provision and many similar that are found in mortgages are not always subject to the exercise of an option by the holder of the note, but frequently are absolute in terms. Mortgages containing such provisions often secure a series of notes some perhaps b]* their terms not due until years in the future. If a provision in a mortgage renders the maturity of the. accompanying note uncertain, and thus renders the note non-negotiable, such note must have all the incidents of a non-negotiable note; at least as- between the parties to the note and those -who take same with notice of the mortgage and its provisions. If the notes before -us are non-negotiable, what is the extent and the 'nature of the liability of the Title Company? On this the courts are in hopeless conflict. But conceding, though not deciding, that the liability of ah indorser of non-negotiable paper is the same as that of an indorser of negotiable paper, yet other important questions present themselves. If the provision in a mortgage, whether absolutely or through the exercise of some option, matures the notes and there be a series of notes secured by such mortgage, must an indorser of these notes, who has not waived hi,s right to notice of non-payment, be notified of the fact that every one of the notes have been matured and dishonored, in order to hold him as indorser, and this regardless of the fact that the due dates named- in some of the notes may bte years in the future? What of the statute of limitations? Does it begin to run as to all notes secured by the mortgage a,s soon as such a .provision is broken, thus, perhaps, barring suit upon one or more of a series of notes w|hen such note or notes, by their terms, are not yet due? These questions become still more complicated when we contemplate a series of notes that have passed into different hands, and where, without' the knowledge of the owner or owners of one or more notes of the series, such a provision in the mortgage has been broken, and the option, if one is given, has been exercised by the holder of another note. W'hat about the rights of the other holders as against indorsers? D'o they lose all rights because, in ignorance of the event which matured all the notes, they have failed to protest their notes? If such a provision is 'broken through the failure to pay interest, taxes, or insurance, and the holder of the first note of a series declares the provision effective, and his note due before it would otherwise be due, does such act on his part -start running the statute of limitations as against all the holders of other notes of such series, so that, perchance, the holder of the last note of the series awakes some day to learn that his note is outlawed when, on its face, it is not due for several years? In determining the proper construction to be given to contracts such as those before us, we are bound to consider all contingencies that might arise, and not merely the particular facts in the cases before us. We believe that it conforms to the real intent of parties to such notes and mortgages, and prevents the possible happening of Contingencies not contemplated by them, to hold that they intend the notes tó be negotiable instruments— that they do not intend, by the giving' and taking of mortgag'es, to destroy such negotiability, but intend merely to give to the payee or his indorsees the right to realize on the security at once upon the happenings of any of the events covered by the provisions of such, mortgages, leaving, however, all personal liability to be determined' on the provisions of the notes. The Iowa court has held in several cases that, where a ¡mortgage contains such a provision as the one before us, and such provision comes into force, it will render the note due. Such decisions placed that court in a peculiar position when, in Trease v. Haggin, 107 Iowa 458, 78 N. W. 58, it had before it a case where two notes were given to one payee, each executed by two makers, and the notes due upon different dates. One maker gave a mortgage securing both notes, and such mortgage contained' a provision like the one we are considering. The payee transferred the notes by indorsement. The provision of the mortgage coming into force, the holder of the notes proceeded to foreclose the notes and mortgages. On the foreclosure proceedings, the first note and a part of the second wfere paid. The holder then waited until the apparent maturity of the second note, when he protested such, note and brought suit against the indorser. Such indorser claimed that the provision matured the note at time of foreclosure; that he was not given the notice of non-pajUnent to which he was entitled as indorser; and that he was released of any liability. Under its holdings in other cases, the court was bound to hold that the notes matured upon the happening" of the event named' in the morgage provision, yet it allowed the peculiar facts of that particular case to 'Control, and' ruled that the second note was not matured until the due date thereof. We think it wise to adopt a rule that gives rise to no such inconsistent results. Among the cases that support our views are McClelland v. Bishop, 42 Ohio St. 113; White v. Miller, 32 Minn. 367, 34 N. W. 736, 19. L,. R. A. 673, and Owings v. McKenzie, 133 Mo. 323, 33 'S. W. 802, 40 L,. R. A. 154. In the Ohio case an indorser, sued as such, was defending upon the ground that a mortgage provision, such as w:e have been considering, had matured the note three years prior to its apparent maturity. Among other things, the court said:

“While it is true that all separate writings, made at the same time, and relating to the same transaction, are, in the eye of the law, as if embodied in one, yet it is not true that when, in one contract, . evidenced by a single paper, or in several, relating to the .same transaction, containing stipulations relating to matters in their nature separate, either should be construed so as to extinguish the other. If the construction claimed for the mortgage be given, it would extinguish the terms of the notes. As well might the stipulations of the note extinguish those in the mortgage. .The stipulation in the mortgage should be construed as providing a remedy on the mortgage, and that, so far as foreclosure proceedings are concerned, the notes for that purpose are due, but for general purposes the obligations on the notes are to be determined by their own expressed terms. In this way both contracts can stand and be fully enforced according to the manifest intention of the parties.”

We will not extend this portion of our opinion by quoting from the opinions ini the other cases cited, but .we commend the reasoning to be found therein — they are well worthy of careful study; this is especially true of the Minnesota case. The notes in suit in the actions now before us had not matured when suits were commenced.

[7] Can the actions be sustained because of section 2451, supra? To sustain same there must not only be complaints alleging facts warranting the bringing of the actions before the debts were due (Twine Co. v. Scott, supra), and, upon trial, proof of such facts (Cox v. Dawson, 2 Wash. 381, 26 Pac. 973) ; 'but there must be proper procedure under section 2451; and such procedure, if challenged, must be properly sustained. It becomes unnecessary for us to pass' upon the sufficiency of the complaint or proof, as we are satisfied that respondent, in five of the cases, did not take one of the steps necessary to support an action brought under section 2451, in that he did not issue any attachments against any defendant, basing his right to same on a ground named in said section; and we are satisfied that the attachments issued in the other two cases were wrongfully sustained when challenged by motions to vacate. What is the clear purpose of the enactment of section 245,1 ? It was to provide a means whereby a creditor, when his debtor had! been guilty of any of the frauds therein named, might protect himself against such debtor by getting his property into the custody of an officer of the court, to be by him held to secure such judgment as might eventually be rendered. This desired result could be achieved by allowing* an attachment to be issued as soon as the fraud w&s discovered. But an attachment is a mere provisional remedy; it must accompany or follow, but never precede, the issuance of the summons. Section 2451 was enacted, not to allow of the bringing of an action before debt is due — that .''lone would be an idle act, as judgment must await maturity of debt; the early bringing of the action is but a means to the end, a means by which an opportunity is given for an attachment. If there is no attachment, or the attachment falls, the action falls. As stated in Streissguth v. Reigelman, 75 Wis. 212, 43 N. W. 1116:

“In an action brought upon a demand not due, a valid attachment is essential to the maintenance of the action. Failing the attachment, the action necessarily abates.”

[8] The only party against which any attachment was issued upon a ground named in said section 2451 is the Title Company. The record shows attachments so issued in but two cases. The Title 'Company moved the vacation of these attachments. Such motions were denied, and the ruling thereon assigned as error. In one case the affidavit for attachment alleged'the forged' character of the paper; that the Title Company, through Dirks, knew of its character, and that it fraudulently induced the McNish Company to purchase same. The affidavit submitted in support of the motion to vacate traversed the above charges. No further affidavit or other evidence appears in the settled record' as submitted in support of the attachment. The order refusing to vacate the attachment refers to an affidavit of McNish, and it would appear, from the briefs, that an affidavit similar to that of McNish submitted in the other case was submitted in this one. Respondent, in opposition to the motion to vacate the other attachment issued against the Title Company and to support the 'burden of proof that wlas cast upon it by the moving affidavit, presented the affidavit of McNish, the president of 'the McNish Company. This affidavit wholly failed to set forth any facts from, which it could be inferred that Dirks, or any other person connected with the Title Cotnpany, was aware that the note was spurious, or that the mortgaged property had no existence — the two facts upon which'the charge of false pretense was based. The affidavit alleged that—

The fraud was “the representation of genuineness [of the note] evidenced by said indorsement of the * * * Title Company by Peter B. Dirks,” and “the recitals contained in said mortgage, to the effect that the said * * * was the owner of all the cattle described in said note [mortgage].”

These facts, instead of furnishing proof to support the charge of false pretense — proof that Dirks knew the true facts — - were strong proof that Dirks believed the paper to be all right. By indorsing the note, the Title Company, through Dirks, warranted its genuineness. Certainly from this act, followed by this consequence, no inference could be drawn that Dirks knew the note -to be forged. The very “recitals contained in the mortgage,” which the president of the McNish Company alleged were relied' upon by him, may well have been relied upon by Dirks. 'There was absolutely nothing else submitted to the court in opposition to these motions to vacate the attachments — not one syllable of testimony to show that Dirks was advivsed of any fact that should have led him to> even suspect the papers to be spurious and the property to have no existence. The motions to vacate such attachments should have been sustained. Wyman v. Wilmarth, 1 S. D. 172, 46 N. W. 190; N’oyes v. Dane, 1 S. D. 125, 45 N. W. 327; Wilcox v. Smith, 4 S. D. 125, 55 N. W. 1107; Finch v. Armstrong, 9 S. D. 255, 68 N. W. 740. With the attachments vacated, the actions, as against the Title Company, would have abated. When the actions failed as against the Title Company they must of necessity have failed as against Tapper. The actions were all prematurely brought against the Title Company and Tapper, and must be dismissed as ’against them.

[9] In the action wherein the Valley Bend Dand & Cattle Company was made defendant, judgment was entered ag'ainst that corporation, and it also has appealed. It also pleaded that the action was prematurely brought, and all we have said above Upon that question applies to the personal relief «sought against this appellant. But equitable relief by foreclosure was sought again-st' this defendant. Respondent alleged, in support of his charge of false pretenses, that the property, described in the chattel mortgage given by this appellant, 'had no exisence in fact. The court found this allegation to be true, and therefore did not decree any foreclosure of the chattel mortgage. Respondent alleged the giving, by this appellant, of a real estate mortgage in security of the note sued on in this particular action.' The court found such a mortgage to have been given, and decreed its foreclosure. There was, however, no plea or finding ‘ that the real estate mortgage contained any provision authorizing foreclosure before maturity of note. Furthermore, while the mortgage contains a provision allowing foreclosure in case of non-performance of certain covenants, there was neither finding nor evidence of any non-performance of such covenants. It follows that respondent was not, at the time of bringing of this action-, entitled to any of the relief sought — either legal or equitable — and this appellant’s plea that the action was prematurely 'brought should have been sustained.

As these actions must all be dismissed, and the new actions, if any, -which may be instituted, may not present many of the numerous questions of -both law and .fact, relating to the legal rights of the parties, that are discussed in the -briefs on these appeals, • we do not feel called upon to pass upon same at this time. What we have just said applies even to the trial court’s alleged' errors in’ not sustaining motions for change of trial judges. While the record on such motions presents a clqse question as to the correctness of the trial court’s rulings thereon, we do not feel called upon to pass thereon, as we deem it improbable that such question will again be presented in any action that may be based on this same paper.

The judgments and orders are reversed- with- -directions to the trial court to dismiss all of said actions as against these appellants.

Case Details

Case Name: Birken v. Hickey

Court Name: South Dakota Supreme Court

Date Published: Jan 30, 1920

Citation: 176 N.W. 137

Docket Number: File Nos. 4517-4523

Court Abbreviation: S.D.