Case Title: CULBERTSON STATE BANK v DAHL

Citation: 

Docket Number: 

State: montana

Court: Montana Supreme Court

Date: 1980-10-22T00:00:00Z

Document:
N o . 80-151 I N T H E SUPREME COURT O F THE STATE O F M O N T A N A 1980 CULBERTSON STATE BANK O F CULBERTSON, M O N T A N A , a Montana S t a t e Corporation, P l a i n t i f f and Respondent, H A R O L D D A H L and G E N E V A DAHL, husband and wife and MAURICE SYTHE, Defendants and Appellants. 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 of Richland. Honorable L. C. Gulbrandson, Judge p r e s i d i n g . Counsel of Record: For Appellants: B j e l l a , Neff, R a t h e r t & Wahl, W i l l i s t o n , North Dakota W. Gene Theroux, Wolf P o i n t , Montana For Respondent: Garden, McCann, and Schuster, Wolf P o i n t , Montana Submitted on b r i e f s : J u l y 22, 1980 Decided : OCT 2 2 1980 ~ i l e d : OCT 2 2 1980 - B . V - Clerk M r . C h i e f J u s t i c e F r a n k I. H a s w e l l d e l i v e r e d t h e O p i n i o n o f t h e C o u r t . P l a i n t i f f - r e s p o n d e n t , Cul b e r t s o n S t a t e Bank ( B a n k ) b r o u g h t t h i s a c t i o n t o f o r e c l o s e a r e a l e s t a t e m o r t g a g e i n t h e R i c h l a n d C o u n t y D i s t r i c t C o u r t . The D i s t r i c t C o u r t , s i t t i n g w i t h o u t a j u r y , e n t e r e d j u d g m e n t i n f a v o r o f t h e Bank and a d e c r e e o f f o r e c l o s u r e , and H a r o l d and Geneva D a h l a p p e a l . H a r o l d and Geneva D a h l , as m a k e r s , e x e c u t e d a $20,000 p r o - m i s s o r y n o t e t o M a u r i c e S y t h e , t h e p a y e e , 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 r e a l e s t a t e m o r t g a g e i n S y t h e ' s f a v o r 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 spe- c i f y t h a t it 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 $4,000 p l u s 7% i n t e r e s t , payments t o commence on F e b r u a r y 1 4 , 1975. The n o t e a l s o d e s i g n a t e s t h e C u l b e r t s o n S t a t e Bank as t h e p l a c e w h e r e payment i s t o 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 opened b y M a u r i c e S y t h e on May 1 0 , 1974. M a u r i c e S y t h e o b t a i n e d a $10,000 n o t e f r o m t h e 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 con- s i s t e d o f an " A s s i g n m e n t o f H a r o l d D a h l N o t e . " C o n s i s t e n t w i t h t h i s p r o v i s i o n , 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 , p a y a b l e t o t h e Bank. On M a r c h 27, 1975, Bank n o t i f i e d H a r o l d D a h l t h a t t h e F e b r u a r y 1 4 , 1 9 7 5 , payment had n o t been r e c e i v e d on t h e p r o - m i s s o r y n o t e h e l d i n e s c r o w . M r . D a h l made a payment o f $5,572.50 ($4,000 on t h e p r i n c i p a l ) on March 3 1 , 1 9 7 5 , 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 M a r c h 31, 1975, he t o l d A l a n P e t e r s o n , B a n k ' s e x e c u t i v e v i c e - p r e s i d e n t , t h a t he had a1 r e a d y p a i d t h e $20,000 o w i n g t o S y t h e . P e t e r s o n t e s t i f i e d t h a t D a h l had s a i d s o m e t h i n g a b o u t S y t h e o w i n g h i m money b u t t h a t D a h l had n o t s a i d a n y t h i n g con- c e r n i n g a b e l i e f t h a t n o t h i n g was owed t o t h e Bank o r S y t h e . $5,000 on p r i n c i p a l and $382.64 i n i n t e r e s t was c r e d i t e d t o S y t h e ' s $10,000 n o t e on March 3 1 , 1975. S y t h e o b t a i n e d a $5,000 n o t e f r o m Bank on A p r i l 23, 1 9 7 5 , a t w h i c h t i m e he t o l d A l a n P e t e r s o n t h a t he d i d n o t owe H a r o l d D a h l any money. Bank t o o k a w r i t t e n a s s i g n m e n t o f t h e D a h l r e a l e s t a t e m o r t g a g e on t h i s d a t e . The a s s i g n m e n t was r e c o r d e d on J a n u a r y 27, 1976. Bank s e n t a l e t t e r t o H a r o l d D a h l on A p r i l 2 3 , 1 9 7 5 , i n f o r m i n g 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 . A n o t h e r l e t t e r was s e n t on J a n u a r y 26, 1976, w h i c h i n f o r m e d D a h l t h a t t h e a s s i g n m e n t had been r e c o r d e d and t h a t a payment was due F e b r u a r y 1 4 , 1976. Bank d i d n o t r e c e i v e any payments f r o m M a u r i c e S y t h e on h i s t w o $5,000 n o t e s . H a r o l d D a h l a l s o r e f u s e d t o make any f u r t h e r payments on t h e n o t e w h i c h had been a s s i g n e d t o t h e Bank. The Bank f i l e d a c o m p l a i n t on O c t o b e r 3 , 1 9 7 7 , a g a i n s t H a r o l d and Geneva 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 - v i c e of p r o c e s s upon M a u r i c e S y t h e . T h i s a c t i o n came on f o r t r i a l a g a i n s t H a r o l d and Geneva D a h l on December 1 9 , 1979. H a r o l d D a h l ' s d e f e n s e a t t r i a l was t h a t he had p a i d t h e n o t e and was d i s c h a r g e d f r o m l i a b i l i t y . He a t t e m p t e d t o show t h a t p a y m e n t s on t h e $20,000 p r o m i s s o r y n o t e had b e e n made d i r e c t l y t o M a u r i c e S y t h e . He i n t r o d u c e d s e v e r a l e x h i b i t s i n t h i s r e g a r d i n c l u d i n g : a c h e c k t o S y t h e f o r $9,520 d a t e d March 4 , 1 9 7 5 ; an $11,800 p r o m i s s o r y n o t e f r o m S y t h e t o h i m s e l f d a t e d J a n u a r y 1, 1 9 7 5 ; and 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 , 1 9 7 5 , 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 $5,572.50, 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 payment made by D a h l . The a p p e l l a n t e x p e n d e d c o n s i d e r a b l e e f f o r t a t t r i a l 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 payments had been made t o M a u r i c e S y t h e , 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 a t t e m p t i n g 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 C o u r t f o u n d t h a t : t h e $20,000 n o t e was exe- c u t e d on F e b r u a r y 1 4 , 1974; a r e a l e s t a t e m o r t g a g e was e x e c u t e d 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 i n c o r p o r a t e d i n t h e m o r t g a g e s p e c i f i e d t h e p l a c e o f payment as t h e C u l b e r t s o n S t a t e Bank; M a u r i c e S y t h e e n d o r s e d t h e 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 i t t o t h e Bank on May 1 0 , 1974; t h e Bank, f o r t h e c o n s i d e r a t i o n o f t h e a s s i g n m e n t o f t h e n o t e and d e l i v e r y o f t h e a s s i g n m e n t o f t h e m o r t g a g e , l o a n e d M a u r i c e S y t h e $10,000 o n November 6 , 1 9 7 4 and $5,000 on A p r i l 2 3 , 1 9 7 5 ; t h e Bank i s t h e l a w f u l " o w n e r 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 Geneva 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 w i t h i n t e r e s t f r o m M a r c h 31, 1975 i s now due and o w i n g f r o m H a r o l d and Geneva D a h l t o t h e Bank; and t h e Bank has i n c u r r e d a t t o r n e y f e e s i n e n f o r c i n g t h e c o l l e c t i o n o f t h e n o t e . 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 t h e n o t e had b e e n b r o k e n b y t h e makers and t h a t t h e Bank was e n t i t l e d t o h a v e t h e m o r t g a g e e n f o r c e d and f o r e c l o s e d and t o 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 c o n t e n d s t h a t t h e D i s t r i c t C o u r t e r r e d i n a d m i t t i n g c o r r e s p o n d e n c e w h i c h t h e Bank r e c e i v e d f r o m M a u r i c e S y t h e u n d e r t h e " b u s i n e s s r e c o r d s " e x c e p t i o n t o t h e h e a r - s a y r u l e . I t i s a l s o c o n t e n d e d t h a t t h e r e i s i n s u f f i c i e n t e v i - d e n c e t o s u p p o r t t h e j u d g m e n t . W i t h r e g a r d t o a p p e l l a n t ' s c o n t e n t i o n t h a t t h e r e i s i n s u f - f i c i e n t e v i d e n c e t o s u p p o r t t h e j u d g m e n t , we f i n d t h e U n i f o r m C o m m e r c i a l Code c o n t r o l 1 i n g . The D i s t r i c t C o u r t p r o p e r l y f o u n d t h a t t h e Bank 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 p o s s e s s i o n o f t h e n o t e w h i c h was e n d o r s e d b y M a u r i c e S y t h e . S e c t i o n 3 0 - 1 - 2 0 1 ( 2 0 ) , MCA. As a r e s u l t o f B a n k ' s s t a t u s as a " h o l d e r " 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 , i t i s e n t i t l e d t o r e c o v e r u n l e s s t h e d e f e n d a n t e s t a b l i s h e s a d e f e n s e . S e c t i o n 3 0 - 3 - 3 0 7 ( 2 ) , MCA. As p r e v i o u s l y s t a t e d , a p p e l l a n t ' s s o l e d e f e n s e was h i s a s s e r t i o n t h a t 1 i a b i 1 i t y had been d i s c h a r g e d b y p a y m e n t s 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 . H o w e v e r , t h e a f f i r m a t i v e d e f e n s e o f payment o n l y d i s c h a r g e s t h e m a k e r ' s l i a b i l i t y on t h e i n s t r u m e n t u n d e r s e c t i o n 30-3-603, MCA, i f payment i s made t o t h e " h o l d e r . " 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 , t h e o r i g i n a l payee. Thus, e v e n had t h e c o u r t d e t e r m i n e d t h a t payments had been made t o S y t h e , t h e a p p e l l a n t w o u l d n o t h a v e been d i s c h a r g e d f r o m l i a b i l i t y on t h e i n s t r u m e n t . I n s h o r t , t h e a p p e l l a n t f a i l e d t o e s t a b l i s h a v a l i d d e f n s e and t h e Bank was e n t i t l e d t o r e c o v e r u n d e r s e c t i o n 3 0 - 3 - 3 0 7 ( 2 ) , MCA. S i n c e t h e Bank i s t h e h o l d e r o f t h e n o t e and a v a l i d a s s i g n e e o f t h e m o r t g a g e w h i c h s e c u r e s t h e n o t e , i t i s e n t i t l e d t o a d e c r e e o f f o r e c l o s u r e t o t h e e x t e n t o f t h e d e b t due and o w i n g on t h e d a t e o f commencement. A p p e l l a n t a l s o a s s e r t s t h a t t h e D i s t r i c t C o u r t e r r e d i n a d m i t t i n g c o r r e s p o n d e n c e r e c e i v e d f r o m M a u r i c e S y t h e w h i c h g e n e r a l l y d e n i e d t h a t D a h l had made any p a y m e n t s d i r e c t l y t o him. 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 " e x c e p t i o n t o t h e h e a r s a y r u l e , o v e r o b j e c t i o n , were s o l i c i t e d b y t h e Bank i n an e f f o r t t o c o l l e c t S y t h e ' s n o t e and t o o b t a i n 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 payment. W e need n o t a d d r e s s t h i s 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 n o e f f e c t on t h e outcome o f t h e l i t i g a t i o n . The e f f e c t o f t h e l e t t e r s was t o r e b u t t h e a p p e l l a n t ' s d e f e n s e o f payment t o a p e r s o n - - n o t a " h o l d e r . " As p r e v i o u s l y s t a t e d , t h i s was n o t a v a l i d d e f e n s e and e v e n if we were t o f i n d e r r o r , i t w o u l d be e r r o r n o t a f f e c t i n g " a s u b s t a n t i a l r i g h t o f t h e p a r t y , " R u l e 1 0 3 ( a ) , Mont .R.Evid., i .e. i t w o u l d n o t be r e v e r s i b l e e r r o r . A f f i r m e d . , , I C h i e f J u s t i c e y e - , ----- --------- ------- ------ J u s ' c e s