146 P. 679 | Cal. | 1915
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *255
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *256 This case was originally decided on appeal by the district court of the third district and the following opinion, prepared by Mr. Justice Hart, was filed:
"This action, brought to recover on two promissory notes, was tried before a jury and a verdict returned in favor of the defendants. The plaintiff has appealed from the judgment thereupon entered in favor of the defendants and from the order denying his motion for a new trial.
"The notes in suit were made in favor of the Banca Svizzera Americana of Locarno (commonly called and known as the Swiss American Bank) by F. Cavagnaro Company, C.J. Borgfeldt Co. and Hilbert Mercantile Company, and were assigned by said bank to the plaintiff. One of the notes was for the sum of five hundred dollars, is dated January 15, 1906, and made payable four months after its date. The other is for the sum of $4,884.18, is dated January 30, 1906, and payable four months after its date. The notes were in the ordinary form and the makers thereof bound themselves thereon both jointly and severally."
"The notes in controversy were executed under the following circumstances, quoting from an admittedly correct statement of the facts in the opening brief of counsel for the plaintiff:
"The F. Cavagnaro Company, one of the makers of the notes, in the month of January, 1906, and before the execution of the notes, was insolvent. An agreement was entered into by and between the F. Cavagnaro Company and its creditors, *257 among whom was the Banca Svizzera Americana of Locarno, commonly called the Swiss-American Bank, by the terms of which the creditors agreed to accept 35 per cent of their respective claims in cash in full satisfaction. The F. Cavagnaro Company, however, lacked $5,384.18 of having enough money to carry out the agreement. Application was made to the Swiss-American Bank for a loan of that sum, the F. Cavagnaro Company offering its notes in return. The bank, however, refused to loan the money on the notes of the F. Cavagnaro Company alone, but demanded that financially reliable persons be procured to go on the notes with the F. Cavagnaro Company. Thereupon the F. Cavagnaro Company, the Hilbert Mercantile Company, and the defendants executed as makers and delivered to the bank the notes and the bank paid $5,384.18 in cash to the F. Cavagnaro Company, which the latter applied in settling the claims of its creditors in accordance with its agreement.
"The defendants at the time the notes were given were partners doing business under the firm name of `C.J. Borgfeldt Co.'
"The complaint contains allegations showing the making and delivering of the notes by the defendants and the other makers to the bank and the assignment of the notes to the plaintiff. After deducting all part payments made by various makers at various times, the amount still due is alleged to be $3,891.86 and interest."
"The defendants admit the due execution of the notes, but claim that they were paid in full. This claim is based upon an alleged oral agreement had between the parties contemporaneously with the execution of the notes, whereby, so it is insisted, the bank agreed to apply to the payment of said notes, after first satisfying a certain note for $4,780.94, mentioned in the answer, all moneys received by it from Cavagnaro Company in preference to the satisfaction, by means of the moneys so received, of other indebtedness due said bank from said Cavagnaro Co. The oral agreement thus referred to was pleaded in the answer as a special defense, and, as thus the facts relative to said agreement are fully and clearly stated, and, as said agreement constitutes the only ground upon which the defendants seek to avoid the force of the obligations of the notes, it is conceived that a clearer apprehension and understanding of the point thus presented may be obtained by a *258 reproduction here in its entirety of the special defense as thus set up:
"`And for a further and separate defense to the first count in plaintiff's complaint contained, defendants allege that at the time of the execution and delivery of the note sued upon in the first count of plaintiff's complaint herein, the plaintiff's assignor agreed that any and all money coming into their hands from F. Cavagnaro Company would be applied to the satisfaction of the said note sued upon in the first count of plaintiff's complaint herein, and the said note sued upon in the second count of plaintiff's complaint herein, after the satisfaction and payment of a certain note in the sum of four thousand seven hundred and eighty, and 90/100 dollars, which was then due and owing from the said F. Cavagnaro Company to the said plaintiff's assignor, and the said plaintiff's assignor at that time agreed that the payment of a certain note in the sum of eighty-seven hundred and fifty dollars due and owing then from the said F. Cavagnaro Company, would be postponed until the payment of the said note sued upon in the first count of plaintiff's complaint, and the said note sued upon in the second count of plaintiff's complaint herein; that subsequent to the execution of the said note sued upon in the first count of plaintiff's complaint herein, and prior to the commencement of this suit, the F. Cavagnaro Company deposited with and delivered over to the plaintiff's assignor certain insurance policies covering the property of the said F. Cavagnaro Company, aggregating in amount, the plaintiff is informed and believes, and therefore alleges, the sum of sixteen thousand dollars; that subsequently, to wit, on or about the 18th day of April, 1906, the property covered by the said insurance policies, delivered to plaintiff's assignor as aforesaid, was destroyed by fire, and defendants are informed and believe, and therefore allege, that the plaintiff's assignor collected and received from the various insurance companies represented by said policies, in payment of the losses sustained upon the property covered by said insurance policies, an amount aggregating the sum of fourteen thousand dollars; that the amount thus obtained by the plaintiff's assignor as aforesaid if applied to the payment of the indebtedness of the said F. Cavagnaro Company to the said plaintiff's assignor in accordance with the agreement as aforesaid to apply all money received from F. Cavagnaro Company to the payment of the *259 notes sued upon in counts one and two of plaintiff's complaint, after the payment of the one forty-seven hundred and eighty and 94/100 dollar note then due plaintiff's assignor, was ample and sufficient to satisfy the indebtedness due on the note sued upon in the first count of plaintiff's complaint herein."
"It was admitted by the plaintiff that the bank realized from the sale of certain goods belonging to Cavagnaro Co. the sum of $408.75 and received from the insurance policies referred to in the answer the sum of $12,425.00. The undisputed evidence shows that the money so received was applied by the bank to the satisfaction of two notes of the F. Cavagnaro Company which are not involved in this action, and that, consequently, no part of said money was applied to the payment of either of the notes in controversy.
"The evidence as to the making of the oral agreement discloses that the parties making said agreement were a representative of the defendants, a representative of the Hilbert Mercantile Company, Elwin W. Gates, president and manager of the Cavagnaro Company, and the plaintiff's assignor, the latter having been represented by Mr. Tognazzi, its manager. Thereafter, Mr. Gates had several conversations with a Mr. Brunner, also an official of the bank, having authority to bind it, and to the latter Gates stated that it was the understanding of all the parties and the desire of the makers of the notes that all moneys received by the bank from Cavagnaro Co. should be applied to the liquidation of the notes in suit, after first so paying the note mentioned in the answer as evidencing an indebtedness to the bank of $4,780.94, which note, as seen, is not involved in this action, so far as the purpose of it is concerned. The evidence shows that the defendants, before signing the notes, declared to the manager of the bank, on the occasion of the making of the oral agreement, that they would refuse to become sureties on the notes unless the proposition there suggested as to the order of the payment of the nates in dispute was assented to by the bank and that thereupon the manager of the latter agreed to said proposition.
"It is in evidence, and, indeed, admitted, that the money received by the bank on account of the insurance policies was first applied to the payment of the $4,780.94 note and the balance remaining applied to the extinction of obligations due *260 the bank from Cavagnaro Co. other than those evidenced by the notes declared upon.
"The plaintiff produced proof to sustain his claim that no such oral agreement as the one upon which the defendants wholly rest their resistance to recovery upon the notes in controversy was made or entered into; but, manifestly, the result of this denial of the oral agreement is only to create a conflict in the evidence upon that question, and it follows, therefore, that, as to the fact of the making of the agreement, the conclusion of the jury is conclusive.
"The defendants, in confirmation of the special defense set up and relied upon by them, contend that, agreeably to the terms of the oral agreement, so much of the money paid to the bank on the insurance policies as was remaining after the satisfaction therewith of the $4,780.94 note ought to have been credited upon the notes in suit or applied in payment thereof. The contention is, obviously, the offspring of the theory that the oral agreement referred to amounted, within the contemplation of section
"The plaintiff, on the other hand, insists that, to have entitled the makers of the notes in dispute to the benefit of the application of said money to the payment of said notes, by virtue of the provisions of section
"The points thus stated and urged here are tested by exceptions reserved at the trial to the rulings of the court admitting evidence of the parol agreement referred to.
"The argument by counsel for the defendants that the failure of the bank to apply the money received by it on the insurance policies to the payment of the notes in suit constitutes a failure of the consideration moving the defendants to become sureties upon said notes, has made no impression upon us. The defendants and the Hilbert Mercantile Company appear upon the face of the instrument as joint makers with Cavagnaro Co. The evidence, however, shows them to be indorsers or sureties. In any event, the loan of the money was a valuable and adequate consideration for the agreement by the sureties that the notes would be paid. (Lompoc Valley Bank v. Stephenson,
"We are of the opinion, however, that the testimony received by the court in proof of the oral agreement was properly admitted as in proof of the direction by the makers of the notes in suit to apply any moneys received by the bank from Cavagnaro Co. to the extinction of their obligations to the bank as evidenced by said notes.
"Section
"`Where a debtor, under several obligations to another, does an act, by way of performance, in whole or in part, which is equally applicable to two or more of such obligations, such performance must be applied as follows:
"`1. If, at the time of performance, the intention or desire of the debtor that such performance should be applied to the extinction of any particular obligation, be manifested to the creditor, it must be so applied.
"`2. If no such application be then made, the creditor, within a reasonable time after such performance, may apply it toward the extinction of any obligation, performance of which *262 was due to him from the debtor at the time of such performance; except that if similar obligations were due to him both individually and as a trustee, he must, unless otherwise directed by the debtor, apply the performance to the extinction of such obligations in equal proportion; and an application once made by the creditor cannot be rescinded without the consent of [the] debtor."
"We are not inclined to accept the view that, in order to comply with and thus receive the benefit of the provisions of the foregoing section, the debtor, under several obligations to the creditor, must, necessarily, at the precise time of performance, direct the application of any payments made by him toward the extinction of a particular obligation. We are of the opinion, rather, that, in sound reason, all that the statute requires or contemplates is that the creditor, at the time of performance or payment, must be in possession of knowledge, obtained from the debtor, of the intention or desire of the latter that the payment shall be applied to the satisfaction of a particular obligation, and that the time, in respect of the date of performance or payment, at which such knowledge is so obtained — that is to say, whether it be at the precise time of performance or at some prior time — is wholly immaterial. In other words, where the appropriation of payments by the debtor has once been made known to the creditor, the intention or desire of the former as to such appropriation is thus manifested to the creditor when the payments are actually made, and a repetition of such manifestation is not necessary. It is no doubt true that the debtor, at the time of performance, may make a different direction as to the application of payments, but unless he does so, the original direction must govern the creditor in the application of the moneys paid. This view of the section under consideration harmonizes with the expressions of our supreme court upon the subject in some early cases.
"In Wendt v. Ross,
"In Clarke v. Scott,
"Nor need the communication to the creditor by the debtor of the latter's intention or desire to apply the payments toward the extinction of a particular obligation be expressed in writing, or in any technical or formal words, or delivered in any particular manner. "It will be sufficient that the intention is manifest, and that it comes to the knowledge of the other party." (2 Am. Eng. Ency. of Law, p. 448.) It therefore necessarily follows that the communication may be shown by parol, whether made at the time of performance or at the time when the obligation as to which the direction was intended to operate was created and its terms committed to writing or at any time between the date of the making of the obligation and that of payments to the payee.
"It is very true, as counsel for the appellant declares, that the terms of a written instrument cannot be altered or varied by a parol agreement. This is, of course, an elementary rule. But, obviously, the effect of testimony disclosing a direction by a debtor to his creditor to apply payments to the extinction of *264
a particular obligation of several the former is under to the latter is not to modify or vary in the slightest degree the terms of the writing. In the case at bar, the defendants do not deny the due execution of the notes in suit or challenge the legal stability thereof in any respect. Indeed, they expressly admit the due execution of the notes, that they signed the same and thus became legally bound to the obligations thereof. In legal effect, their resistance to recovery upon the notes is wholly founded upon the claim that sufficient payments of money had been made by Cavagnaro Co. to the bank to satisfy the notes and that the bank had wrongfully refused and failed to credit the notes with such payments. Their position is, in other words, no different in principle from the case where the maker of a promissory note has made payments on such note, thereby reducing the amount due thereon, which payments, however, had not been credited on the note by the payee. In such case, of course, no one will dispute the maker's right to resist payment of the original amount of the note, or his right to show such payments by parol testimony, nor will it be claimed that the effect of thus showing such payments would be to alter or vary the terms of the note. At any rate, our conclusion is that if the evidence discloses that contemporaneously with the execution of the notes, the makers thereof manifested or communicated to the bank their desire that the moneys received by the bank from Cavagnaro Co. should be applied as indicated, it was the duty of the bank to so apply such moneys; that its failure to do so under the stated circumstances involved a violation of the rights of the defendants under the terms of section
That the so-called oral agreement in question must be held to have involved a direction by the debtor to the bank to apply the moneys received by it from Cavagnaro Co. in the manner and order explained, cannot be doubted. *265
The contention of the plaintiff that no evidence was introduced disclosing that the principal debtor, Cavagnaro Co., took any part in the making of the oral agreement or the direction that said moneys should be applied as stated is not borne out by the record. The witness, Gates, testified that he was president and manager of said corporation at the time it became insolvent, in October, 1905; that he attended to all its affairs at that time and also in the year 1906; that he was present as a representative of Cavagnaro Co. when the oral agreement was had with the bank's manager, Mr. Tognazzi, and participated therein and that subsequently he apprised Mr. Brunner, an official of the bank, who, it was admitted, had authority to act for the plaintiff, of the understanding that the moneys paid by Cavagnaro Co. should be applied upon the notes in suit, after the note for $4,780.94 was satisfied. It is true that it does not affirmatively appear what the precise scope or limitations of Gates's authority were as president and manager of Cavagnaro
Co., but we have a right to infer, from the fact that he was the corporation's president and manager, and from the fact that he attended to and managed all its affairs both before and after it became embarrassed from financial difficulties, that he possessed full authority to act for and bind it on the occasion of the making of the oral agreement, and that his election, manifested to the bank, at the time referred to, as to the manner and order of the application of the moneys paid by Cavagnaro Co. to the bank, was that of the latter, it being clear that said transaction involved an act within the ordinary or usual course of business of said corporation. (Martin v. Webb,
"It is next claimed that certain testimony was erroneously permitted to go to the jury and that its effect was to prejudice the jury against the plaintiff. The testimony of which complaint is thus made and which was brought out, over the objection of the plaintiff, in the examination of the defendants' witness Reynolds, who was connected with Hilbert Mercantile Company, at the time of the transactions concerned here, tended to show, so it is urged, that the bank, although entering into the agreement with the other creditors of Cavagnaro *266 Co. to accept in full settlement of all claims against said corporation payments on the basis of 35 cents on the dollar, had in fact received payment in full of all indebtedness of Cavagnaro Co. to it. It is manifest that such testimony could have no relevant bearing upon the issues made by the pleadings. It appears, however, that the only testimony showing or tending to show that the bank received more than 35 cents on the dollar was brought out in the cross-examination of the defendants' witness, Gates, by counsel for the plaintiff himself. Having stated, on cross-examination by the plaintiff's attorney, that the bank had received a settlement of Cavagnaro Co.'s indebtedness to it the full amount thereof, that witness, still under cross-examination, was asked by a juror: "Was there anybody else excepting the bank who got 100 cents?" to which question the witness replied, no objection having been interposed thereto: "Not that I know of." The witness, Reynolds, was thereafter asked by the attorney for the defendants and permitted, against the objections of the plaintiff, to answer the following questions: "Did you know anything about the existence of the $8,750 note other than the $4,700 thirty-five per cent note at the time these notes were being signed in the office of the Swiss-American Bank? A. I did not. I learned of that after the fire. Q. Did you know that the bank was receiving, or was to receive, anything more than thirty-five per cent? A. I did not." Thus it will be observed that Reynolds did not himself say that the bank was receiving in settlement of Cavagnaro Co.'s indebtedness to it an amount in excess of that compounded by the creditors of the former. While the questions thus put to the witness assumed the truth or existence of the fact to the proof of which they were addressed, and were for that reason improper, even though it was true that the bank received more than it agreed to accept, since, as stated, such testimony was wholly irrelevant to the issues, yet, it cannot be said, in view of the fact that counsel for the plaintiff himself brought out the fact on cross-examination or without objection permitted a juror to bring it out, that the questions to Reynolds or the form in which they were propounded could have added to or intensified the injury which the plaintiff had thus already inflicted upon himself.
"We have found no occasion for remanding the cause, and the judgment and order are accordingly affirmed." *267
Subsequently the case was reheard and the learned district court, while adhering to its original views, reversed the judgment and order upon the grounds: 1. That the lower court tried the case upon the erroneous theory that the sole consideration which moved the defendants to become parties to the notes was the oral agreement; and, 2. That an instruction given by the trial court evidenced this theory and misstated the law to the injury of the plaintiff. A hearing in this court was granted in order that we might further consider these points.
Examining the pleadings we find that the answer does not set up the oral agreement as the sole consideration for the signing of the note by defendants. The first defense pleaded to each note is that said note, both principal and interest, had been paid. To each note there is set up in the answer a defense based upon the verbal understanding with reference to the order of payment of the obligation of the F. Cavagnaro Company and the fact that sufficient money had been received by the bank on account of said company to pay the notes in suit if the credit had been applied in the agreed manner. This part of the pleading is set forth in the opinion of the district court of appeal which we have quoted above. When proof of the oral agreement was offered, however, the objection interposed by plaintiff was that the execution of a contract in writing supersedes all the negotiations which preceded or accompanied the making and signing of the instrument, and that proof of the oral agreement therefore was not admissible to vary the terms of the note. The court below held that the proffered evidence of the oral agreement was admissible on the ground that it constituted the sole consideration for the notes in suit. The ground of this ruling was admittedly erroneous but the ruling itself was nevertheless correct. The agreement or understanding pleaded by defendants did not alter nor modify the terms of the notes. Therefore appellant's objection to its introduction in evidence was untenable. It was admissible under section
"You are hereby instructed that if you believe from the evidence that at the time the notes in suit were executed and as the sole consideration therefore there was an agreement *268 between the defendants and the Swiss-American Bank that any moneys coming into the hands of said bank from F. Cavagnaro Company would be applied first to the note for four thousand seven hundred and eighty and 94-100 dollars ($4780.94) due from the F. Cavagnaro Company to the said bank and then the balance to the payment of the two notes in suit, and if you further believe from the evidence that there subsequently came into the hands of the said Swiss-American Bank a sufficient sum to pay the said note for four thousand seven hundred and eighty and 94-100 dollars ($4780.94) and also the two notes in suit, if such application had been made, your verdict should be in favor of the defendants."
This instruction was erroneous for the reason stated in the quoted opinion of the district court of appeal, — namely, because it sought to confine the jury to the oral agreement as the sole consideration for the acts of the defendants in signing the notes. But defendants assert that plaintiff was not prejudiced by the instruction, which placed upon the defendants the burden of proving both the existence of the agreement and also that it was the sole consideration for the notes in suit. But appellant says he was entitled to have submitted to the jury directly the question whether or not the oral agreement involved a direction to the bank by the debtors for the application of the payments to the satisfaction of particular obligations. The instruction does not submit that question to the jury. There was no dispute at the trial regarding these facts: 1. The bank had loaned to the Cavagnaro Company the money represented by the notes; 2. Defendants had signed the notes; and, 3. Enough money had been collected on account of the Cavagnaro Company to pay the notes if applied according to the wishes of the defendants. The sole question pertinent to the oral arrangement which the court should have propounded to the jury was whether or not there had been a direction for the payment of the notes in the order for which defendants contended. The quoted instruction involves that very matter and more. It seems to us therefore that the subject of "sole consideration" may be eliminated from the instruction and it will state correctly the law regarding application of payments.
Appellant makes the further objection that the instruction refers to an agreement between the defendants and the bank and therefore is not by its terms applicable to a direction to *269
the bank by the debtor, the F. Cavagnaro Company, regarding the order of settlement of the latter's notes. Of course, no agreement between the plaintiff's assignor and the defendants without the concurrence of the debtor, the F. Cavagnaro Company, would bring the facts of the case under the provisions of section
For the reasons given in the original opinion of the district court of appeal and those which we have added, the judgment and order are affirmed.
Shaw, J., Sloss, J., Lorigan, J., and Angellotti, C.J., concurred. *270