Douglas County State Bank v. Sutherland

204 N.W. 683, 52 N.D. 617, 1925 N.D. LEXIS 145

• Court: North Dakota Supreme Court
• Decided: May 23, 1925
• Status: Published

Opinions

Nuessle, J.

This suit was brought to recover on a promissory note. The defendants other than Sutherland are endorsers thereon.

The complaint sets out the making, execution and delivery of the note by Sutherland, the endorsement thereof by the other defendants for accommodation of the maker, and the nonpayment of the note.

The answering defendants, for their amended answer, deny generally the allegations in the complaint; and further answering, allege that they conditionally endorsed a note similar to that set out in the complaint ; that the condition was not complied with; that no demand was over made for the payment of the note; that the same was never presented to the defendants; that no notice of dishonor or notice of protest was ever given to the defendants, and that such notices were not waived.

It appears that the defendant Sutherland lived in or near the little village of Bordulac, Poster county, North Eakota. He conceived the idea that Bordulac could be made a great and prosperous city. He sold this idea to a number of business men and farmers of that vicinity. In order to bring this transformation to pass, he purposed erecting various buildings and establishing various industries in the village. He needed capital to do this, and persuaded the other defendants herein to assist him in financing his scheme. To that end he procured them to sign the following document denominated a letter of credit:

“Bordulac, N. D. April 1st 1919.

Whereas, W. H. Sutherland a resident of Bordulac, N. D. for the purpose of establishing a larger credit in the amt of $6500.00 (Six Thousand Hive Hundred dollars), same to pay for 'an electric lighting-plant at Bordulac, N. D. to light the city of Bordulac, N. D. and building or buildings to house the same.

The proposed buildings to consist of one one story building 32 x 64 feet with 8 foot post also containing a concrete floor.

One two story frame building 30 x 60 feet with a full basement.

The firms’ names occupying said buildings to be The Lucky Strike Utilities Oo. A corporation, incorporated under the state laws of N. D. for the purpose of operating an electric light plant a Garage and to handle the Xewanee Private Utilities line of water system also heating plants.

The Lucky Strike Live Stock Co., a partnership firm for the purpose of operating a meat market and general live stock business also a restaurant and temporary hotel.

We the undersigned will not be liable for such establishment of said credit until 10 (Ten) Men of a business rating of no less a rating than $10,000.00 (Ten Thousand Dollars).

The money obtained by such credit shall be handled by the Bordulac State Bank and such buildings as are erected and property acquired by said W. H. Sutherland shall be held by said Bordulac State Bank as collateral to said credit for the term of one year from date of the establishment of such credit.” Sutherland took the letter of credit to the bank at Bordulac and sought to borrow $6500.00 on his note by means of it.

The plaintiff, Douglas County State Bank, is a banking corporation located at Alexandria, Minnesota. Nor some years it had been placing some money in Foster county, North Dakota. Landeene, the president of the Douglas Oounty Bank, was a stockholder in the Borqjulac bank. When the Bordulac bank received Sutherland’s note and letter of credit it sent them forward to the plaintiff bank with an inquiry as to whether that bank could and would make such a loan. The plaintiff bank wrote back indicating its willingness to make the loan to Sutherland, but took exception to the letter of credit and said it would require Sutherland’s note to be endorsed by the signers thereon. It enclosed a form of note meeting with its requirements and asked the Bordulac bank to procure the signature and endorsement thereof. The Bordulac bank advised Sutherland as to the requirements of the Alexandria hank and handed him the note. Sutherland executed this note and procured nine endorsers, including the defendants. This note, known in (he record as Exhibit 3, is with endorsements as follows:

Alexandria, Minn. May 3, 1919. No. 2313(1

One year 191- after date, without grace, for value received I promise to pay to the order of Douglas County State Bank at its othce Sixty Five .Hundred & no/100 Dollars, $6500.00; with interest thereon at the rate of 8 per cent per 'annum from date until paid; interest payable annually.

Extended to

.Extern ded to

W. H. Sutherland.

P. O. Bordulac, N. D.

(Endorsements)

For value received we hereby waive presentment, demand, protest and notice of protest on the within note.

Angus Ferguson

E. A. Boach

W. A. Wentland

I. T. Harbottle

Theodore Bergland

Erick Erickson

Chas Zink

Franz E. Zink

E. 0. Mnltz

Paid 6500

Sept.* 4-19 18/2.61 4627.39

Sutherland delivered this note to the Bordulac bank which in turn sent it forward to the Alexandria bank, and the consideration of $(>500. 00 was transmitted to the Bordulae bank to the credit of Sutherland. All of the funds so placed to bis credit were used by Sutherland in carrying out his project, excepting $3 8^2.63, which was thereafter paid to the plaintiff and endorsed upon the note.

Sutherland’s project was not successful. The note was not paid at maturity. The plaintiff sought to make collection, but was unable to do so. In May, 1920 there was an attempt to renew the obligation but this was not successful. Finally in the fall of 1921 the plaintiff put die note in the hands of its collectors, and on October first, 1921 the note on which this action is brought was executed, endorsed and turned over to the plaintiff. This note with endorsements was as follows:

Alexandria, Minn., October 1st, 1921. No. 211 So.

November l«t, 3922 after date, without grace, for value received Í promise to pay to the order of Douglas County State Bank at its office Fifty Five TImudred Forty and 68/100 Dollars, $5540.68, with interest thereon, at the rato of 8 per cent per annum from date until paid; interest payable annually

Yh TI. Sutherland.

P. O. Bordulae, N. Dak.

(Endorsements.)

For value-received we hereby guarantee the-payment of the within note at maturity, or at any time thereafter with interest at the rate of 8 percent, per annum until paid, waiving demand, notice of nonpayment and protest.

E. A. Koaeh

Frank C. Multe

M. A. Wentland

E. E. Zink

Theodore Berghmd

9/22/22 Pd by rent money, $192.18.

It was not paid and this action resulted. The cause was tried to a jury which returned a verdict in favor of the plaintiff.

After' plaintiff had rested, and while the defendants were offering evidence in support of their defenses as pleaded, plaintiff produced the original note, Exhibit 3. Exhibit 3 was not returned to the makers at the time Exhibit 1, the note in suit, was executed and delivered to it. There was no endorsement across the face of Exhibit 3 to in any way indicate that the obligation had been renewed. At the close of the whole case the defendants moved for a dismissal on the ground that the record then disclosed that the note in suit was a renewal of Exhibit 3, and that Exhibit 3 was not endorsed as renewed, as required by the provisions of Chapter 91, laws of 1921. This motion was denied. The defendants thereupon asked for leave to amend their answer to conform to the proofs as made in the record and by said amendment to set out the facts with reference to the failure to so mark the note Exhibit 3. This motion also was denied.

The jury returned a verdict for the plaintiff. Judgment was entered thereon. Thereafter the defendants moved for a now trial, specifying various grounds therefor, including the rulings above pointed out. This motion was denied. The defendants thereupon perfected this appeal from the judgment and from the order denying their motion for a new trial.

The record is voluminous. Numerous errors are specified and assigned. We think that it will be unnecessary to refer to all of them in this opinion for the reason that we are agreed that there must be a reversal on account of t-he rulings of the court with reference to the point made on the motion for dismissal at the close of the case and the application for leave to amend the answer. On the facts as disclosed by the record, the case, in our j udgment, depends upon the construction and application of chapter 91, Sess. Laws 1921. This Chapter reads as follows :

“Section 1. That it shall be illegal, hereafter, for any person, or corporation, State or National Bank, doing business in the State of North Dakota, to take from any debtor or other person obligated upon a promissory note, any renewal note therefor without returning the promissory note renewed, unless there be written or printed across the renewed note the words “Renewed note/’

“Section 2. Any promissory note given in renewal of a previous promissory note shall be of no force or effect unless given in conformity with Section 1 hereof.

“Section 3. All acts and provisions of law conflicting with this enactment are repealed.

'■'Section 4. Emergency. Whereas, there are many banks, corporations and persons who and which have taken promissory notes for renewal purposes, and which notes have fallen into the hands of innocent persons and become collectible twice, an emergency exists and this Act shall take effect and be in full force and effect from and after its passage and approval.”

The plaintiff insists that this statute is immaterial to the case for the reason, first, that the note sired upon is a Minnesota contract; second, that the plaintiff is a foreign corporation and was not doing business in the State of North Dakota within the meaning of the term as used in the statute; third, that the note sued upon was not a renewal note but a new independent contract and obligation, and that it had been constructively returned; and fourth, in any event the defendants, in order to raise a defense under the Statute, were required to plead it, and having failed to do so, such defense was waived.

1. The question of the validity (that is, as to whether there is in fact a contract) of a contract is to be determined by the law of the place where it is made. See Scudder v. Union Nat. Bank, 91 U. S. 406, 23 L. ed. 245; McGarry v. Nicklin, 110 Ala. 559, 55 Am. St. Rep. 40, 17 So. 726; Burr v. Beckler, 264 Ill. 230, L.R.A.1916A, 1049, 106 N. E. 206, Ann. Cas. 1915D, 1132; Cockburn v. Kinsley, 25 Colo. App. 89, 135 Pac. 1112; Lovell v. Boston & M. R. Co. 75 N. H. 568, 34 L.R.A.(N.S.) 67, 78 Atl. 621; Wharton, Conf. L. 3d ed. §§ 427e and 427k; 3 R. C. L. p. 856; 13 C. J. 253. See also note in 26 L.R.A. (N. S.) 764. It thus becomes necessary to consider the first contention raised by the plaintiff that the contract here involved was a Minnesota contract and that the statute, chapter 91, Sess. Laws 1921, can have no application. The defendant urges that it must bo presumed that the M innesota law is the same as that of North Dakota, therefore, whether the contract is a Minnesota contract or a North Dakota contract can make no difference. But there is no such presumption as the defendant contends for. On the contrary, since there is no proof as to the Minne' sota law, the presumption is that the, common law there prevails. See § 7936, subsec. 41, Comp. Laws, 1913; Hanson v. Great Northern R. Co. 18 N. D. 324, 138 Am. St. Rep. 768, 121 N. W. 78; Cosgrave v. McAvay, 24 N. D. 343, 139 N. W. 693; Wilson v. Kryger, 29 N. D. 28, 149 N. W. 721; Pratt v. Pratt, 29 N. D. 531, 151 N. W. 294.

The plaintiff is a 'Minnesota corporation. The. contract in question was dated in Minnesota. I.t was to be. performed, that is, the note was to he, paid, in Minnesota. Tt appears that the original note was in fact signed by the makers and by the endorsers in North Dakota. The note, as thus signed was drawn by the plaintiff and sent to the, Bordulac bank to he executed. AYhen the instrument was delivered it became binding and effective as against the makers and endorsers. See § 5891, Comp. Laws, 1913. Whether the Hordnlae bank was the agent of the plaintiff’ at the time'of the execution of the original instrument to receive that instrument for it. is immaterial, for it is undisputed that it was mailed to the plaintiff from North Dakota. It was so mailed at the direction of the plaintiff. ^Nothing more: remained to he done by either party. After the defendants thus parted with possession of the instrument they were hound thereby. The mailing completed the contract. See Burr v. Beckler, 264 Ill. 230, L.R.A.1916A, 1049, 106 N. E. 206, Ann. Cas. 1915D, 1132; McGarry v. Nicklin, 110 Ala. 559, 55 Am. St. Rep. 40, 17 So. 726; F. B. Hauck Clothing Co. v. Sharpe, 83 Mo. App. 385; Williston, Contr. § 97 and eases cited. The instrument in suit was also executed and endorsed in compliance with the requirements of the plaintiff. The original note fell due hut was not paid. Thereafter it was sent by the plaintiff to its agent and attorney in North Dakota. There is a dispute as tó the exact- course that was followed in the transaction, hut the evidence of the defendants tends to establish that the renewal was executed and endorsed by them in North Dakota and either delivered over to the representative of the plaintiff there or returned to the plaintiff hv mail. Which course was followed is again immaterial. The instrument became effective as against the makers and endorsers when it was by them delivered. The facts are in dispute, so in considering the questions here presented we must assume that the delivery was made and the contract .completed in North Dakota. Hut, the plaintiff' further insists that it was to be performed in Minnesota, and under the laws of Minnesota there was no requirement such as is imjiosed by chapter 91, Sess. Laws. 1921; that since the contract was to be performed in [Minnesota the law of the place of performance must determino the validity of the instrument, and therefore, the North Dakota law cannot apply. But we think it is clear that the law of the place -where the contract was made must control. That law determines whether or not there was a contract. If there was a valid contract nncler that law then that contract is valid everywhere. If there was no valid contract under that law then them is no valid contract anywhere. See Continental Supply Co. v. Syndicate Trust Co. ante, 209, 202 N. W. 404; Frankel v. Hillier, 16 N. D. 387, 113 N. W. 1067, 15 Ann. Cas. 265; Burr v. Beckler, 264 Ill. 230, L.R.A.1916A, 1049, 106 N. E. 206, Ann. Cas. 1915D, 1132; McGarry v. Nicklin, 110 Ala. 559, 55 Am. St. Rep. 40, 17 So. 726; Cockburn v. Kingsley, 25 Colo. App. 89, 135 Pac. 1112; International Harvester Co. v. McAdam, 142 Wis. 114, 26 L.R.A. (N.S.) 774, 124 N. W. 1042, 20 Ann. Cas. 614; Williston, Contr. § 1792; Whart. Contl. L. 3d od. § 427c. The purpose and policy of the legislature in enacting Chapter 91 is apparent. The legislature did not prohibit the renewing of notes, nor did it seek to hamper or interfere with commercial transactions. AYhat it had in mind was the protection of the, citizens of North Dakota from fraud. It purposed doing this by making illegal the renewal of notes unless tin1 originals were returned to the makers, or if not returned, were endorsed with notice of the fact of renewal, and made such notes as should be taken contrary to this requirement- of no force and effect. The legislature' had no regard hi doing this to the time when or the place where such contracts as it contemplated should he performed. It contemplated simply the protection of the citizens of the state against a pai-tieular form of fraud, and time and place of performance were immaterial.

2. Plaintiff further contends that it is a foreign corporation; that it had no place of business in North Dakota and was not doing bus-in ess in the state within the meaning of that term as used in the statute, and, therefore, in any event, the statute did not apply to it. Plaintiff relies upon the ease of State use of Hart-Parr Co. v. Robb-Lawrence Co. 15 N. D. 55, 106 N. W. 406, wherein it was held that a single business transaction in this state by a corporation which was not engaged in doinsi business generallv here did not constitute “doing business” as that term was used in the statute (Rev. Codes 1895, §§ 3261-3265), prescribing the duties of foreign corporations. AVe think, however, that the words, “doing business,” as used in the statute there considered were used with a wholly different meaning from that implied in the statute here under consideration. Considering the purpose and .policy of chapter 91, supra, it is clear that the words, “doing business.” as used, mean any transaction of the sort contemplated in the act. The purpose of the statute is to protect the public against a particular form of fraud. (AVe do not intend to imply that any fraud was contemplated or attempted in this case). It was intended to cover any transaction consummated in North Dakota. The statute applies to individuals as well as to corporations. It is aimed at the transaction and not at the parties. To adopt the construction contended for by the plaintiff would largely defeat its purpose. But, in any event, the evidence in this case discloses that the plaintiff had numerous local transactions with residents of North Dakota, so many in fact that it maintained a collector in North Dakota to attend to its past due loans. Our conclusion is that if the transaction was completed in North Dakota the plaintiff was doing birsiness hero within the meaning of that term as used in the statute.

3. Plaintiff also insists that the statute does not apply for the reason that the note in suit is a new and independent obligation and not a renewal of the original note. The plaintiff itself did not so regard the transaction at the time the note in the instant case was taken. It had written the defendants demanding that the obligation be “renewed.” All through the trial of the case, at least up to the time where the question was first raised as to the validity of the instrument in suit, the transaction was spoken of both by the witnesses for the plaintiff as well as those for the defendant as a renewal transaction. But, in any (went, it seems to us that every renewal is a new and independent obligation insofar as concerns the original of which it is a renewal, and that the transaction here in question was exactly such a transaction as was -within the purview of the legislature in enacting this statute. AVe do not believe that further consideration of this contention is necessary.

Plaintiff further insists that the statute was complied -with and that there was a constructive return of the original obligation. This 'con tention is contrary to the evidence on behalf of the defendants. There is at least a question of fact as to whether such was the case. In considering the questions here raised under the record as made, we must assume that such was not the case.

4. There remains the contention that in order to invoke a defense under the statute the defendants were required to plead it, and having failed to do so thereby the defense was waved. Generally, we think, the rule is that where the illegality of the contract upon, which suit is brought does not appear upon the face of the complaint, it must be pleaded in order that a defendant may take advantage of that defense. See Frankel v. Hillier, 16 N. D. 387, 113 N. W. 1067, 15 Ann. Cas. 265. But this rule is subject to certain exceptions, and one of those exceptions is that where the facts constituting such defense are shown by the record as made by the plaintiff, it may be taken advantage of even though not pleaded. That is exactly the instant case. The defendants were not chargeable with the duty of making the endorsement required by tlie statute. They bad the right to assume that such endorsement had been made. The instrument was not in their possession. They could not he chargeable with knowledge of its condition. When during the course of the trial the instrument was produced in court in the possession of the plaintiff and, being offered in evidence*, it appeared that the statute bad not been complied with, and all the facts touching the defense later sought to be raised were offered and received in evidence without objection, we see no reason why such defense should not then he available to the defendant. If the defendants’ version of the facts was correct, the effect of the statute was to render the transaction as disclosed illegal and the renewal so taken void, and no court will consciously lend its aid for the enforcement of an illegal contract. See Frankel v. Hillier, 16 N. D. 387, 113 N. W. 1067, 15 Ann. Cas. 265, and eases cited; Claflin v. United States Credit System Co. 165 Mass. 501, 52 Am. St. Rep. 528, 43 N. E. 293. See also note in 12 L.R.A. (N.S.) 575.

On the whole record the evidence clearly tended to support, the defendants’ contention that the instrument in suit was executed and delivered in North Dakota, and that it was of no force and effect by reason of plaintiff’s failure to comply with chapter 91, Sess. Laws, 1921. At least the defendants were entitled to have the facts with reference to the transaction determined by tlie jury, and tlie application for leave to amend to conform to tlie proofs as made should have been allowed. Tlie refusal of tlie trial court to permit suck amendment was prejudicial error.

The judgment must he reversed and in a new trial ordered.

Bmuziux and BuRKE, JJ., concur.