Culbertson State Bank v. Dahl

• Court: Montana Supreme Court
• Decided: October 22, 1980
• Docket: 80-151
• Status: Published

Opinion

No. 80-151

I N THE SUPREME COURT OF THE STATE O M N A A F OTN

CULBERTSON STATE BANK OF CULBERTSON, MONTANA, a Montana S t a t e C o r p o r a t i o n ,

P l a i n t i f f and Respondent,

HAROLD D H a n d GENEVA DAHL, husband AL and w i f e a n d MAURICE SYTHE,

Defendants and A p p e l l a n t s .

Appeal from: D i s t r i c t Court of t h e Seventh J u d i c i a l D i s t r i c t , I n and f o r t h e County o f R i c h l a n d . H o n o r a b l e L. C . G u l b r a n d s o n , J u d g e p r e s i d i n g .

C o u n s e l o f Record:

For Appellants:

B j e l l a , N e f f , R a t h e r t & Wahl, W i l l i s t o n , N o r t h Dakota W. Gene T h e r o u x , Wolf P o i n t , Montana

For Respondent:

Garden, McCann, and S c h u s t e r , Wolf P o i n t , Montana

S u b m i t t e d o n b r i e f s : J u l y 2 2 , 1980

Decided : OCT 2 2 1980 ~ i l e d : OCT 2 2 1980

-V B- . Clerk Mr. Chief Justice Frank I. H a s w e l l delivered the Opinion of the Court.

P laintiff-respondent , C u l b e r t s o n S t a t e Bank ( B a n k ) b r o u g h t

this action t o foreclose a real e s t a t e mortgage i n t h e Richland

County District Court. The D i s t r i c t Court, sitting without a

jury, entered judgment in favor of the Bank and a decree of

foreclosure, and Harold and Geneva Dahl appeal.

H a r o l d and G e n e v a D a h l , as m a k e r s , e x e c u t e d a $20,000 pro-

missory note t o Maurice Sythe, t h e payee, on F e b r u a r y 1 4 , 1974.

The D a h l s a l s o e x e c u t e d a real e s t a t e mortgage i n Sythe's favor

w h i c h was r e c o r d e d on t h e same d a t e . The t e r m s o f t h e n o t e s p e -

c i f y t h a t i t i s t o be p a i d i n e q u a l a n n u a l i n s t a l l m e n t s o f $ 4 , 0 0 0

p l u s 7% i n t e r e s t , p a y m e n t s t o commence on F e b r u a r y 1 4 , 1 9 7 5 . The

note also designates the Culbertson State Bank as the place

where payment is to be made. The n o t e was p l a c e d i n an e s c r o w

a c c o u n t w i t h t h e Bank. The e s c r o w a c c o u n t was o p e n e d b y M a u r i c e

S y t h e on May 1 0 , 1 9 7 4 .

Maurice Sythe obtained a $10,000 note from the Bank on

November 6, 1974. The n o t e s t a t e d t h a t t h e B a n k ' s s e c u r i t y c o n -

sisted of an "Assignment o f H a r o l d Dahl Note." Consistent with

t h i s provision, t h e " D a h l n o t e " was e n d o r s e d b y S y t h e , payable t o

t h e Bank.

On March 27, 1975, Bank notified H a r o l d Dahl that the

February 14, 1975, payment had not been received on the pro-

missory note held in escrow. Mr. Dahl made a payment of

$5,572.50 ($4,000 on t h e p r i n c i p a l ) on March 31, 1975, w h i c h was

t o be a p p l i e d t o t h e n o t e h e l d i n e s c r o w . He t e s t i f i e d t h a t on

March 31, 1975, he told Alan Peterson, Bank's executive

vice-president, that he had a1 r e a d y paid the $20,000 owing to

Sythe. Peterson testified that Dahl had said something about

Sythe owing h i m money b u t t h a t D a h l had n o t said anything con-

cerning a belief that nothing was owed to the Bank or Sythe.

$5,000 on p r i n c i p a l and $ 3 8 2 . 6 4 i n i n t e r e s t was credited

to Sythe's $10,000 note on March 31, 1975. Sythe obtained a

$5,000 n o t e f r o m B a n k on A p r i l 23, 1975, a t which time he t o l d Alan Peterson that he d i d n o t owe H a r o l d D a h l a n y money. Bank

took a written assignment of the Dahl real e s t a t e mortgage on

this date. The assignment was recorded on January 27, 1976.

Bank sent a l e t t e r t o H a r o l d Dahl on A p r i l 23, 1975, informing

h i m t h a t a w r i t t e n a s s i g n m e n t o f t h e m o r t g a g e was t a k e n . Another

l e t t e r was s e n t on J a n u a r y 2 6 , 1976, which informed Dahl t h a t the

a s s i g n m e n t h a d b e e n r e c o r d e d and t h a t a p a y m e n t was due F e b r u a r y

14, 1976.

Bank did not receive any payments from Maurice Sythe on

his two $5,000 notes. Harold Dahl also refused to make any

further p a y m e n t s on t h e n o t e w h i c h h a d b e e n a s s i g n e d t o t h e Bank.

T h e B a n k f i l e d a c o m p l a i n t on O c t o b e r 3 , 1977, a g a i n s t H a r o l d and

G e n e v a D a h l and M a u r i c e S y t h e . Bank was n e v e r a b l e t o make s e r -

vice of process upon Maurice Sythe. This action came on for

trial against Harold and Geneva Dahl on December 19, 1979.

Harold Dahl's defense at trial was that he h a d p a i d t h e

note and was discharged from liability. He attempted to show

that payments on the $20,000 promissory note had been made

directly to Maurice Sythe. He introduced several exhibits in

this regard including: a check t o S y t h e f o r $9,520 d a t e d March

4, 1975; an $11,800 promissory note from Sythe t o h i m s e l f dated

J a n u a r y 1, 1 9 7 5 ; a n d an u n n e g o t i a t e d c h e c k d a t e d A p r i l 2 3 , 1975,

made o u t b y h i m s e l f and a l l e g e d l y s i g n e d b y S y t h e f o r $ 5 , 5 7 2 . 5 0 ,

c o n t a i n i n g a n o t a t i o n t h a t i t was a r e f u n d o f t h e p a y m e n t made b y

Dahl.

The appellant expended considerable effort at trial i n

a t t e m p t i n g t o p r o v e t h a t d i r e c t p a y m e n t s h a d b e e n made t o M a u r i c e

Sythe, and t h e r e s p o n d e n t d e v o t e d a s i m i l a r e f f o r t i n attempting

t o r e b u t t h e s e a1 l e g a t i o n s .

The D i s t r i c t Court found that: t h e $20,000 n o t e was e x e -

c u t e d on F e b r u a r y 1 4 , 1974; a real e s t a t e m o r t g a g e was executed

a n d r e c o r d e d on t h e same d a t e ; one o f t h e t e r m s o f t h e p r o m i s s o r y

n o t e w h i c h was incorporated i n the mortgage s p e c i f i e d t h e p l a c e

of payment as t h e C u l b e r t s o n S t a t e Bank; Maurice Sythe endorsed the p r o m i s s o r y n o t e p a y a b l e t o t h e Bank and d e l i v e r e d it to the

Bank on May 10, 1974; the Bank, for the consideration of the

assignment of the note and delivery of the assignment of the

mortgage, l o a n e d M a u r i c e S y t h e $10,000 on November 6, 1974 and

$5,000 on April 23, 1975; the Bank is the lawful "owner and

h o l d e r " o f a l l t h e n o t e s and t h e m o r t g a g e ; H a r o l d and G e n e v a D a h l

h a v e p a i d o n l y $4,000 on t h e n o t e a s s i g n e d t o t h e Bank; $11,000

with interest from March 31, 1975 i s now due and owing from

Harold and Geneva Dahl to the Bank; and the Bank has incurred

attorney fees in enforcing the collection of the note. The

D i s t r i c t C o u r t c o n c l u d e d t h a t a l l o f t h e t e r m s and c o n d i t i o n s o f

the note had been broken by the makers and that the Bank was

entitled to have the mortgage enforced and foreclosed and to

r e c e i ve a t t o r n e y f e e s .

On a p p e a l , t h e a p p e l l a n t contends t h a t t h e D i s t r i c t Court

erred in admitting correspondence which the Bank received from

Maurice Sythe under t h e "business r e c o r d s " e x c e p t i o n t o t h e hear-

say rule. It i s a l s o contended t h a t t h e r e is insufficient evi-

dence t o s u p p o r t t h e judgment.

With regard t o appellant's contention t h a t there i s insuf-

ficient evidence to support the judgment, we find the Uniform

Commercial Code c o n t r o l 1 i n g . The D i s t r i c t Court p r o p e r l y found

t h a t t h e B a n k was a " h o l d e r " o f t h e p r o m i s s o r y n o t e , s i n c e i t was

i n possession of the n o t e w h i c h was endorsed by Maurice Sythe.

Section 30-1-201(20), MCA. As a result of Bank's status as a

"holder" and i t s p r o d u c t i o n o f t h e i n s t r u m e n t , it i s entitled to

recover unless the defendant e s t a b l is h e s a defense. Sect i o n

30-3-307 ( 2 ) , MCA.

As previously stated, appellant's sole defense was his

assertion that 1 i a b i 1i t y had been d i s c h a r g e d by payments a1 l e -

g e d l y made d i r e c t l y t o M a u r i c e S y t h e . However, the affirmative

defense o f payment only discharges the maker's l i a b i l i t y on t h e

i n s t r u m e n t under s e c t i o n 30-3-603, MCA, i f p a y m e n t i s made t o t h e

"holder." The a p p e l l a n t n e v e r a t t e m p t e d t o p r o v e t h a t payment was made t o t h e " h o l d e r . He i n s t e a d a t t e m p t e d t o p r o v e t h a t p a y m e n t s

w e r e made t o M a u r i c e S y t h e , the original payee. Thus, e v e n had

the court determined that payments had b e e n made t o S y t h e , the

appellant would not have been d i s c h a r g e d from liability on the

instrument. I n short, the appellant f a i l e d t o establish a v a l i d

defnse and the Bank was entitled to recover under section

Since the Bank is the holder of the note and a valid

assignee o f t h e mortgage which secures the note, it i s e n t i t l e d

t o a decree of foreclosure to the extent of the debt due and

o w i n g o n t h e d a t e o f commencement.

Appellant also asserts that the D i s t r i c t Court erred in

admitting correspondence received from Maurice Sythe which

g e n e r a l l y d e n i e d t h a t D a h l h a d made a n y p a y m e n t s d i r e c t l y t o h i m .

The t w o l e t t e r s w h i c h were a d m i t t e d u n d e r t h e " b u s i n e s s r e c o r d s "

exception t o t h e hearsay r u l e , over objection, were s o l i c i t e d by

the Bank in an effort to collect Sythe's note and to obtain

i n f o r m a t i o n c o n c e r n i n g D a h l ' s a1 l e g a t i o n s o f p a y m e n t . We n e e d n o t

address this i s s u e on t h e m e r i t s , s i n c e t h e e v i d e n c e c o u l d have

no e f f e c t on t h e outcome of the litigation. The effect of the

letters was to rebut the appellant's defense of payment to a

person--not a "holder." As previously stated, this was not a

valid defense and even i f we were to find error, it would be

error not affecting "a substantial right of the party," Rule

103(a), Mont .R.Evid., i.e. it would not be reversible error.

Affirmed.

,I Chief Justice y e - , ----- - - - - - - - - - - - - - - - - ------ Jus 'ces