Case ID: wis_167/html/0043-01.html
Source: Caselaw Access Project
Author: {"author": "ViNJE, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Bank of Evansville, Appellant, vs. Kurth, Respondent.
    
      February 5
    
    March 5, 1918.
    
    
      Sales: Fraud: Written contract: Parol evidence of prior conversations: Bills and notes: Holder in due course: Knowledge of contract affecting payment: Negotiable instruments: Time of payment.
    
    1. Where, in an action upon promissory notes given for a part of the purchase price of an electric lighting plant, one defense was that the purchase had been induced by fraud, parol evidence as to conversations and discussions between the parties to the sale, leading up to the execution of a written contract, was competent on that issue, the terms of the written contract not being sought to be varied thereby.
    2. A finding by the jury that at the time of purchasing the notes in suit the plaintiff bank had, through its president, who was also an officer of the vendor of the lighting plant, actual notice of the contents of the written contract of sale, which contained provisions affecting the time of payment of the notes, is held to be sustained by the evidence.
    3. Construing together a contract for the sale of a lighting plant and promissory notes given for a part of the price, the notes were, as to persons witli knowledge of the terms of the contract, rendered nonnegotiahle (under sub. (3), sec. 1675 — 1, Stats.) by a provision in the contract under which the time of payment of the notes was uncertain and might never occur if the plant failed to earn more than needed repairs.
    Appeal from a judgment of the circuit court for Rusk county: James Wickham, Circuit Judge.
    
      Affirmed.
    
    Action upon two promissory notes. The defense was that plaintiff was not a holder in due courses; that defendant was induced by the false and fraudulent representations of the Frost Engine Oompany to purchase the electric lighting plant at Weyerkauser, for a part of the purchase price of which the notes in suit were given; and that there was a breach of the written warranty contained in the contract of sale accompanying the notes. Such written contract specified, among other things, the plant sold, provided for its removal by the vendor to another location, and for certain future services at fixed prices. The provisions as to payments and warranty were as follows:
    “The said Theo. Kurth hereby agrees to' pay for this plant the sum of four thousand dollars ($4,000) as follows-: One note of $1,000 bearing six per cent, interest, payable within three years, or any time after one year from date. This note to be secured by real-estate mortgage. Balance of $3,000 payable in monthly instalments the 20th of each month in sums of fifty per cent, or more of the monthly earnings of the plant. Said payments to be indorsed on one or more of five notes to be given by said Theo. Kurth, for the sum of $600 each. ... In case of serious accident to the plant in case of storm, etc., it is agreed that payments may be deferred on the above notes until the cost of needed repairs can be paid for out of the earnings of the plant. The Frost Engine Company hereby guarantees the above material for a period of one year, and any defective parts or workmanship will be replaced free of cost.”
    The court submitted the issues to the jury in a special verdict, and the jury found: (1) When negotiating for the sale of tbe lighting plant to the defendant, E. S. Erost, the agent of the Erost Engine Company, represented in substance to the defendant, in order to induce him to purchase said property, that the engine had 'a capacity of at least twenty-eight horse power and that the lighting plant had sufficient capacity to properly 'light the village of Weyer-hauser as it then existed without ¿making additions to the plant for several years; (2) the defendant purchased said property relying upon said representations and believing them to be true; (3) said representations were false; (4) the defendant, considering his intelligence and experience, was justified in relying upon the truth of said representations; (5') the difference in value, including interest, between what the lighting plant was worth and what it would have been worth had it been as represented, was $1,520; (6) the lighting plant, including the engine, generator, and batteries, at the time the plant was delivered to the defendant, was in. a defective condition; (7) the difference in value, including interest, between what said property was worth and what it would have been worth if.it had been free from such defects and in the condition as guaranteed by the written contract, was $880; (8) at the time George L. Pullen, the president of the plaintiff bank, purchased the notes in question on behalf of the bank, he had actual notice of the existence and contents of the written contract; (9) plaintiff did not pti-r-chase said notes in good faith without any notice of the fraud or other unlawful means by which said notes were obtained; and (10) the court found that the face amount of said notes, with interest to date of verdict, less payments made thereon, was $1,102.08. The court entered judgment for defendant dismissing plaintiff’s complaint and it appealed.
    Eor the appellant there were briefs by L. J. Ruslc of Chippewa Ealls, attorney, and T. Q. Richmond and O. T. Toe-baas of Madison, of counsel, and oral argument by Mr. Toe-baas and Mr. Richmond.
    
    
      
      J. W. Garow of Ladysmith, for the respondent.
   ViNJE, J.

The conclusions reached by the court as to the issues and evidence render it necessary to consider only two of the assignments of error alleged by plaintiff, namely: (1) Did the court err in admitting testimony of conversations and discussions by and between the parties in reference to the sale of the lighting plant prior to the time of making the written contract? and (2) Did the court err in affirming the jury’s finding that plaintiff was not a holder in due course because it had actual notice of the contents of the written contract at the time the notes were bought? If these assignments of error are not well taken, then the questions of whether plaintiff had constructive notice of the con-' tents of the written contract because Pullen was an officer of both plaintiff and the Frost Engine Company, and whether there was a valid indorsement of the notes, become immaterial.

It is urged that since a written contract of sale was executed after the conversations leading up to the sale were had, parol testimony was inadmissible as to the contents of those conversations. This would be so were the terms of the written contract sought to be changed by such testimony. But that is not the case here. Two defenses were pleaded. One of damages for fraud in inducing the defendant to purchase the plant, the other for breach of the warranty contained in the written contract. There was therefore no effort made to vary the terms of the written contract by parol. The court separately submitted these two defenses to the jury in questions 1 and 6. The conversations were competent on the issue of fraud involved in the first finding. On such an issue a wide range of evidence is permissible.

Upon the question of whether Pullen had actual notice of the contents of the written contract at. the time the notes were purchased the evidence is not consistent. The notes were purchased July 13, 1914. On November 27, 1914, Pullen wrote the defendant as follows:

“As per agreement between you and the Erost Engine Company wbicb they left with us at the time we bought the notes against you, there was a payment due on the same November 20th; possibly this has escaped your notice. Trust on receipt of this letter you. will send us a draft and greatly oblige. ”

On the stand Pullen claimed that the statement that the agreement was left at the time the notes were bought was a mistake of his stenographer, but the jury evidently did not believe that. And there was reason for their not so doing aside from the positive statement in the short letter quoted which was signed and no doubt read by Pullen at the time, and that reason is found in the fact that while plaintiff’s evidence was that the contract was not delivered to it until about the 23 d or 24th of October, one of the notes sued on contains these indorsements:

Indorsement on principal. Balance due on principal.

Sept. 21, 1914, $100 $500

Oct. 23, 1914, 100 , 400

Mr. Erost testified that he received these payments and turned them over to the plaintiff bank. There is nothing in the note to show that the principal could or was to he paid in’instalments. Naturally the bank would have made some inquiry into this matter when the first payment was made had it heen ignorant of the contents of the contract. But no inquiry seems to have been made. Pullen was president of the plaintiff bank and also a director of the Erost Engine Company. No doubt the jury thought he kept himself informed as to the business of both concerns, and that when he bought the notes for the bank he also received the agreement that went with them, as he says he did in his letter. It is difficult to understand how that definite statement in a letter of a few lines only, and one that involved the subject matter of tbe agreement, could bave been tbe result of tbe mistake of a stenographer. On tbe whole evidence we are satisfied with tbe finding of tbe jury on tbe question, — especially since it also has tbe sanction of tbe trial court.

It is evident that tbe notes and contract construed together, as they must be (Thorp v. Mindeman, 123 Wis. 149, 101 N. W. 411), rendered tbe notes nonnegotiable under our statute. Sub. (3), sec. 1675 — 1, Stats., requires a negotiable instrument to be payable “on demand or at a fixed or determinable future time.” Under tbe contract tbe time of payment of tbe notes was uncertain and might never occur if tbe plant failed to earn more than needed for repairs.

By the Court. — Judgment affirmed.