Hay v. Hudson

224 P. 840, 31 Wyo. 150, 1924 Wyo. LEXIS 17

• Court: Wyoming Supreme Court
• Decided: April 8, 1924
• Docket: Nos. 1199, 1206
• Status: Published

Opinion

Kimball, Justice.

On January 5, 1921, defendants, Frank L. Hudson, Harriet Hudson and Leonard W. Hudson, made and delivered nine promsisory notes in the aggregate sum of $126,000, payable to plaintiff, John ~W. Hay, secured (1) by a chattel mortgage from Frank L. Hudson to plaintiff; (2) by a real estate mortgage from Frank L. Hudson and Harriet Hudson to plaintiff; (3) by a real estate mortgage from Frank L. Hudson and Leonard W. Hudson to plaintiff, and (4) by a note for $7500 made by defendant, Presgroves, to Frank L. Hudson, secured by two real estate mortgages, and assigned by Frank L. Hudson to plaintiff as collateral security for the notes first mentioned.

The nine notes evidencing the principal indebtedness all became due at the same time, October 13, 1921, and default having been made in their payment, the plaintiff, on October 14, 1921, took possession of the property covered by the chattel mortgage which he proceeded to foreclose by advertisement and sale. The property sold for $99,522.60 which, after deducting claimed expenses, was applied in payment of the interest on all nine of the notes to November 3, the day of sale, and in payment of the principal of three notes in full and another in part. The three notes that were thus1 fully paid were surrendered at the trial. The action was for recovery of the amount due on the six other notes and for foreclosure of the several real estate mortgages. It is conceded that! as Presgroves was served with summons outside the state and made no appearance in the action no money judgment could have been rendered against him.

The answer of defendants, Harriet Hudson and Leonard W. Hudson, was a general denial. The answer of Frank L. Hudson, admitted the execution and delivery of the notes’; the execution of the real estate mortgages; the assignment of the Presgroves note as collateral, and denied all other allegations of the petition. As a counterclaim, defendant, Frank L. Hudson, set forth a cause of action in trover, admitting the execution and delivery of the chattel mortgage, and alleging that the property covered thereby had been unlawfully converted) by plaintiff to defendant’s damage in the sum of $220,000.

The trial was to a jury and resulted in a verdict and judgment in favor of defendants on tbe causes of action set forth in plaintiff’s petition, and in favor of the plaintiff on the counterclaim of Frank L. Hudson. Both the plaintiff and the defendant last mentioned bring error. . The two error proceedings have been argued and submitted together, and may be disposed of by one opinion.

The judgment against the plaintiff on the causes of action set forth in the petition followed a finding that he was not the real party in interest.

The plaintiff alleged in his petition that he was the holder of the notes which bore his endorsement in blank. He testified that he was both the holder and owner, produced all the notes; surrendered those that had been paid in full and put in evidence the others. We think it was clear from undisputed evidence that the plaintiff had taken all the steps theretofore taken for the collection of the debt and had made or authorized all disbursements properly added to the indebtedness, such as the expenses of foreclosure and taxes on the mortgaged property. Mr. Fair, the cashier of the American National Bank, a witness for the plaintiff, testified that he had acted as the agent of the plaintiff in keeping account of the transactions affecting the loan. Other testimony given by this witness raised the doubt as to the right of the plaintiff to maintain the action. On his direct examination he testified that the notes in suit, on their delivery to the plaintiff, were discounted with the bank. On cross-examination he testified that the bank owned the notes from the day they were made, and, quoting from the record:

“Q. That is, the bank still holds the notes?

A. The bank still holds the notes — you understand, they were discounted for Mr. Hay.

Q. Yes; that is, he wrote his name on the back, placed the notes in the bank and the money therefor was deposited to Hudson’s credit. The consideration was the bank’s money, and not Mr. Hay’s money.

A. Not necessarily.

Q. Well, what is the fact?

A. The bank agreed to discount these notes for Mr. Hay; we advanced him the money.

Q. When a bank discounts a note, the bank is the owner of the note from that time on, is it not ?

A. Temporarily so, yes.

Q. And always so, unless somebody takes up or pays the note, isn’t it?

A. It is.”

On re-direct he testified:

“Q. Mr. Fair, in this particular instance, what were the arrangements about these notes ?

A. We agreed to discount them.

Q. And after they were due, what occurred, if anything ?

A. We demanded payment from the maker and also from Mr. Hay, the endorser.

* * #

Q. Do you mean to testify that the bank owns these notes now?

A.' They are the, property of Mr. Hay, but at the same time, they are in our possession. ’ ’

On re-cross .-

“Q. And the balance due on these notes has never been paid to the bank by Mr. Hay, or anyone else ?

A. No.

Q. And the possession of the notes has remained with the bank since they were discounted to the bank by Mr. Hay?

A. Naturally we wouldn’t give them up until they were paid.”

This evidence received no special notice at the time. It came into the ease rather incidentally and without any accompanying circumstances to give warning of the import-anee it was later to assume. Tbe defendants ’ pleadings had not challenged plaintiff’s right to collect what was due on the notes, and one of the defendants had pleaded a counterclaim which he continued to urge throughout the trial. The defendants made no offer to amend their answers, and there was no suggestion that any defendant had a defense against the American National Bank that was not available against the plaintiff. In these circumstances it is perhaps not strange that counsel for plaintiff seem to have overlooked the possibility of this testimony being seized upon as a ground for questioning the plaintiff’s right to maintain the action. They contend that the pleadings were insufficient to raise such an issue, but that question we deem it unnecessary to discuss.

At the conclusion of all the evidence counsel for defendants made the point that the plaintiff’s evidence (meaning the testimony of the witness, Fair, supra) established that plaintiff was not the real party in interest entitled to maintain the action, and a directed verdict for the defendants on that theory was requested. Plaintiff then asked leave to reopen his ease and to re-call Mr. Fair to clear up the matter. Defendants objected to this on the ground that the witness should not be given an opportunity to contradict his testimony already given. The objection was sustained. The court then refused to direct a verdict on this issue as requested by defendants, but gave over plaintiff’s objection an instruction as follows:

4 4 If you find from the evidence in this case that the notes in suit at the time of their execution were discounted by the payee, John W. Hay, to the American National Bank of Cheyenne, that said bank from its funds advanced the consideration received by the defendant, Frank L. Hudson, on account of and for the execution) of said notes, that said notes' have not since the same were discounted by said Hay to said bank; been transferred back to the' said John W. Hay, then you are instructed that the American National Bank of Cheyenne is the real party in interest, and the plaintiff John W. Hay cannot recover in this action, and your verdict must be for the defendants upon the several causes of action set up in plaintiff’s petition.”

The notes in suit being endorsed in blank were payable to bearer (N. I. L. §9, C. S. § 3942), and negotiable by delivery. N. I. L. § 30, C. S. §3963. At common law, as including the law merchant, the party in possession of such an instrument could enforce payment by suit in his own name, and the defendant could not question his title in any manner short of impeaching its good faith. Ancona v. Marks, 7 H. & N. 686; Law v. Parnell, 7 C. B. (N. S.) 282; Little v. Obrien, 9 Mass. 423; Conroy v. Warren, 3 Johns. Cas. (N. Y.) 259; 2 Am. Dec. 156; Guernsey v. Burns, 25 Wend. (N. Y.) 411; Iowa & California Land Co. v. Hoag, 132 Calif. 627; 64 Pac. 1073; Greene v. McAuley, 70 Kan. 601, 79 Pac. 133, 68 L. R. A. 308. Under code provisions like our section 5580 requiring actions to be prosecuted in the name of the real party in interest some doubt arose as to whether a defendant sued by the holder of a negotiable instrumen^ could go behind the plaintiff’s formal title and defeat the action by showing that some other person was the real party in interest, but we think by the greater weight of authority it was held that the rule of the common law was not changed. Pomeroy on Remedies, §§ 128-131; Giselman v. Starr, 106 Calif. 651, 40 Pac. 8; Manley v. Park, 68 Kan. 400, 75 Pac. 557, 66 L. R. A. 967, 1 Ann. Cas. 832 approving dissenting opinion in Stewart v. Price, 64 Kan. 191, 67 Pac. 553, 64 L. R. A. 581. Whatever might have been our holding on that point before the enactment of the Negotiable Instruments Law, there is no longer any room for doubt. The bearer is the holder (N. I. L. § 191, C. S. § 4124), and the holder may sue in his own name (N. I. L. § 51, C. S. § 3984) though he has no interest in the proceeds. Owen & Co. v. Storms & Co., 78 N. J. Law 154; 72 Atl. 441; Bovarnick v. Davis, 235 Mass. 195; 126 N. B. 380; Harrison v. Peacy, 174 Ky. 485; 192 S. W. 513; Antelope County Bank v. Wright, 90 Nebr. 621; 133 N. W. 1123, Ann. Cas. 1913B, 1476; Craig v. Palo Alto Stock Farm, 16 Ida. 701, 102 Pac. 393.

We are therefore of opinion that the right of the holder of negotiable paper to' collect it by suit is not affected by section 5580, supra, and that the Negotiable Instruments Law in so far as it affirms that right is declaratory of the common law.

From what we' have said it is clear that if the plaintiff was the holder of the notes defendants, having no defense which they could not then urge against the plaintiff, were not interested in the question of ownership. It is contended, however, that the plaintiff failed to prove that he was the holder, or, at least, that his evidence warranted a finding that he was not.

The plaintiff proved that he was the holder when he produced the notes payable to bearer and in his possession. Under the authorities already cited this evidence was sufficient prima facie to establish his right to prosecute the action, and continued to be sufficient for that purpose to the end of the case unless overcome by a showing of bad faith. In Greene v. McAuley, 70 Kan. 601, 79 Pac. 133, 68 L. R. A. 308, it was remarked that there was a singular lack of explanation or illustration as to just what might be considered bad faith in this connection, and after a review of many of the cases it was said the true rule of general, if not universal, application is that, “so far as affects the question of the right of the plaintiff to maintain the action, the only inquiry open to the defendant is whether the plaintiff has such a title to the note that payment made to him would be a complete protection to the defendant from further liability. ’ ’ See, also, Waldock v. Winkler, 51 Okla. 485, 152 Pac. 99; Continental Securities Co. v. Interborough R. T. Co., 118 Misc. Rep. 11, 193 N. Y. Supp. 892; 2 Daniel Neg. Ins. § 1191.

The defendant is protected if the real owner consents to the maintenance of the action by the holder. Jump v. Leon, 1921 Mass. 511, 78 N. E. 532, 116 Am. St. Rep. 265. However, tbe plaintiff-holcler is not required to prove that the owner consents (Lowell v. Bickford, 201 Mass. 543, 88 N. E. 1) and it seems to follow that want of consent on the part of the owner to the maintenance of the action by the apparent holder is a matter of defense, and at least one of the things that should appear before it can be held that the plaintiff’s possession is in bad faith.

In view of these principles, conceding that the bank was the owner of the notes, the plaintiff was entitled to maintain the action unless the testimony of the witness, Fair, justified a finding either that the plaintiff was not in possession of the notes, or that he was suing thereon without the bank’s consent. We think the testimony justified neither finding. When the witness stated that the bank held the notes and that it had possession of the notes, he could not have meant that it had the actual possession, for it is proved by the record and conceded that the notes were then in the custody of the court after having been produced, identified and introduced in evidence- by the plaintiff. The witness must have meant only that he considered that the possession of the plaintiff, or the court, was the possession of the bank, or for its benefit. In the circumstances, there being no evidence that plaintiff’s possession was tortious, the cashier’s very statement that the bank still held the notes, so far from proving that the bank objected or failed to consent to the maintenance of the action, tended on the other hand to show that the possession of the notes and the prosecution of the suit by the plaintiff were with the bank’s consent and for its benefit. From the undisputed evidence we have no doubt that payment to plaintiff would have been payment “in due course” within the meaning of section 51, supra, of the Negotiable Instruments Law, and that a judgment in his favor would have fully protected the defendants from further liability. It follows that the finding and judgment that the plaintiff was not entitled to maintain the action is unsupported.

The judgment in favor of the plaintiff on Frank L. Hudson’s counter-claim followed a directed verdict. The counter-claiming defendant did not deny that there was a default which gave the plaintiff, as mortgagee, the right to take possession and sell the mortgaged property, but contended that the notice of sale was not published for the time required by section 4701, Wyo. C. S. 1920, which provides:

“Notice that such mortgage or conveyance will be foreclosed by a sale of the mortgaged property or some part thereof, shall be given by an advertisement published in any regular issue of any newspapr of general circulation published in the county in which such sale shall take place, not less than once a week, for three successive weeks; # & > 9

The notice in question was published October 19, October 26, and November 2, and the sale was had November 3, only fifteen days after the first publication. It is the defendant’s contention! -that under the statute three full weeks, or 21 days, must elapse between the date of the first publication and the date of the sale. This view is supported by many authorities, including Early v. Homans, 16 How. 610; 14 L. ed. 1079; Leach v. Burr, 188 U. S. 510; 23 Sup. Ct. 393; 47 L. ed. 567; Walker v. Stewart, (D. C.) 261 Fed. 427; Finlayson v. Peterson, 5 N. Dak. 587; 67 N. W. 953, 33 L. R. A. 532; 57 Am. S. Rep. 584; In re Hoscheid’s Estate, 78 Wash. 309; 139 Pac. 61; Myakka Co. v. Edwards, 68 Fla. 372; 67 So. 217, Ann. Cas. 1917 B, 201; Bacon v. Kennedy, 56 Mich. 329; 22 N. W. 824; State v. Cherry Co., 58 Nebr. 734; 79 N. W. 825; Bouchier v. Hammer, 140 Wis. 648, 123 N. W. 132. Other authorities take a different view. Olcott v. Robinson, 21 N. Y. 150; 78 Am. Dec. 126; State v. Yellow Jacket Silver Min. Co., 5 Nev. 415; Knowlton v. Knowlton, 155 Ill. 158; 39 N. E. 595; Hollister v. Vanderlin, 165 Pa. St. 248; 30 Atl. 1002, 44 A. S. R. 657; McDonald v. Nordyke Marmon Co., 9 N. Dak. 290; 83 N. W. 6; Thomas v. Issenhuth, 18 S. Dak. 303; 100 N. W. 436; Swett v. Sprague, 55 Me. 190; Alexander v. Alexander, 26 Nebr. 68; 41 N. W. 1065; Banta v. Wood, 32 Ia. 469.

The apparent conflict is often found to be dne to differences in. the language of the statutes or orders by which a notice by publication was required, and some of the cited cases are not very persuasive one way or the other in interpreting the Wyoming law. Some of the decisions cannot be reconciled. Perhaps more often than in any other1 state tire question has had the careful consideration of the Nebraska courts. State v. Hanson, 801 Nebr. 724, 115 N. W. 294 and Claypool v. Robb, 90 Nebr. 193, 133 N. W. 178, and cases cited. In State v. Hanson, at page 737 of 80 Nebr. (115 N. W. 299) the point of difficulty is stated as follows:

“Where the time mentioned.by the statute expresses the duration of the notice, the same must be published for and during the time mentioned. Where, however, the time mentioned indicates only the number of times the notice is required to be published, it is satisfied if the notice is published the number of times mentioned. ’ ’

This statement, we venture to say, all courts will approve. Compare Finlayson v. Peterson, supra, with McDonald v. Nordyke Marmon Co., supra; Myakka Co. v. Edwards, supra, with Townsend v. Brown, 69 Fla. 155, 67 So. 869. But it is not always easy to decide whether the time mentioned in the statute was intended to fix the duration of the notice, or only the number of times for the publication of the notice.

The opinion in the Nebraska case continues:

• “It is apparent that the phrases “shall publish a notice once each week for three weeks,” and “a notice shall be given for three weeks by publication,” have different meanings. In the first “for three weeks” limits the number of publications, and in the other phrase'“for three weeks” fixesi the period of time during which the publication must be made. ’ ’

All the decisions do not support the view expressed in the last quotation, and it is unnecessary for us to give it our unqualified approval. It is at least a persuasive argument that the notice in the case at bar was a compliance with section 4701, supra, even without any other legislative declaration on the subject. We have, however, another statute which we think clears up the difficulty. An act passed in 1909, entitled “An act relating to and regulating the publication of legal notices and legalizing publications heretofore made in conformity with this act” now appears in the code of civil procedure as sections 5701 to 5703, C. S. 1920. We may say in passing that we know no reason for placing this act among the provisions of the civil code.' The section of the act pertinent to the present inquiry (Sec. 3, Ch. 30, Laws of 1909, now part of Sec. 5703, supra) is as follows:

“In all cases where under the laws a notice is required or permitted to be published for a number' of weeks specified, it shall be sufficient that the publication be made once each week for the number of issues corresponding to the number of weeks from (for) which such publication is required to be made; Provided, however, That not more than fifteen days shall intervene between the date of the last publication and the time set for the intended hearing, action, sale, or other proceeding or act. In no case shall the notice given for a longer time than required by law, be held defective for that reason. ’ ’

Section 4701 requires a. publication at least once a week for three successive weeks. Section 5703 says that a notice under such a law shall be sufficient if published once each week for the number of issues corresponding to the number of weeks, and the. doubt whether the phrase “for three successive weeks,” as used in section 4701, prescribes the duration of the notice or only the number of publications, must be resolved in favor of the latter construction. The proviso of section 5703 shows that the legislature considered the ■question of the time that should elapse between the date of the last publication and the date of doing the advertised act, and while it carefully guarded against too long an interval it significantly omitted to say that any interval should be too short. We think, therefore, that in the case at bar the notice published in a weekly newspaper for three successive! issues, and the sale had less than 15 days after the last publication, satisfied the statute. The trial judge was right in holding that the notice was sufficient, and as its alleged insufficiency was the only reason for the claim of a conversion of the mortgaged- chattels, tire directed verdict for plaintiff on the counter-claim was proper.

Besides the issue on the counter-claim and the question as to the plaintiff’s right to maintain the action the only other controversy at the trial arose over disputed items of disbursements by plaintiff which he had charged against defendants as expenses of foreclosure. Except for tire dispute over such items a judgment might be directed for plaintiff. As it is, a new trial must be had for the purpose of deciding the amount due upon the obligations sued on.

The judgment on the counter-claim will be affirmed. The judgment against plaintiff will be reversed and the case remanded for a new trial for the purpose indicated.

Pottee, Ch. J., and Blume, J., concur.

NOTE — See 8 C. J. pp. 359, 825, 826, 827, 1005, 1011, 1054; 29 Cyc. p. 1121.