No. 80-151 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1980 

CULBERTSON STATE BANK OF CULBERTSON, 

MONTANA, a Montana State Corporation, 

Plaintiff and Respondent, 

HAROLD DAHL and GENEVA DAHL, husband 

and wife and MAURICE SYTHE, 

Defendants and Appellants. 

Appeal from: District Court of the Seventh Judicial District, 

In and for the County of Richland. 

Honorable L. C. Gulbrandson, Judge presiding. 

Counsel of Record: 

For Appellants: 

Bjella, Neff, Rathert & Wahl, Williston, North Dakota 

W. Gene Theroux, Wolf Point, Montana 

For Respondent: 

Garden, McCann, and Schuster, Wolf Point, Montana 

Submitted on briefs: July 22, 1980 

Decided : OCT 22 1980 

~iled: OCT 22 1980 

-B.VClerk 
Mr. Chief Justice Frank I. Haswell delivered the Opinion of the 

Court. 

Pl ai ntiff-respondent , Cul bertson State Bank (Bank) brought 

this action to foreclose a real estate mortgage in the Richland 

County District Court. The District Court, sitting without a 

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

foreclosure, and Harold and Geneva Dahl appeal. 

Harold and Geneva Dahl, as makers, executed a $20,000 promissory note to Maurice Sythe, the payee, on February 14, 1974. 

The Dahls also executed a real estate mortgage in Sythe's favor 

which was recorded on the same date. The terms of the note specify that it is to be paid in equal annual installments of $4,000 

plus 7% interest, payments to commence on February 14, 1975. The 

note also designates the Culbertson State Bank as the place 

where payment is to be made. The note was placed in an escrow 

account with the Bank. The escrow account was opened by Maurice 

Sythe on May 10, 1974. 

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

November 6, 1974. The note stated that the Bank's security consisted of an "Assignment of Harold Dahl Note." Consistent with 

this provision, the "Dahl note" was endorsed by Sythe, payable to 

the Bank. 

On March 27, 1975, Bank notified Harold Dahl that the 

February 14, 1975, payment had not been received on the promissory note held in escrow. Mr. Dahl made a payment of 

$5,572.50 ($4,000 on the principal) on March 31, 1975, which was 

to be applied to the note held in escrow. He testified that on 

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

vice-president, that he had a1 ready paid the $20,000 owing to 

Sythe. Peterson testified that Dahl had said something about 

Sythe owing him money but that Dahl had not said anything concerning a belief that nothing was owed to the Bank or Sythe. 

$5,000 on principal and $382.64 in interest was credited 

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

$5,000 note from Bank on April 23, 1975, at which time he told 
Alan Peterson that he did not owe Harold Dahl any money. Bank 

took a written assignment of the Dahl real estate mortgage on 

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

Bank sent a letter to Harold Dahl on April 23, 1975, informing 

him that a written assignment of the mortgage was taken. Another 

letter was sent on January 26, 1976, which informed Dahl that the 

assignment had been recorded and that a payment was due February 

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 payments on the note which had been assigned to the Bank. 

The Bank filed a complaint on October 3, 1977, against Harold and 

Geneva Dahl and Maurice Sythe. Bank was never able to make service 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 had paid the 

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 to Sythe for $9,520 dated March 

4, 1975; an $11,800 promissory note from Sythe to himself dated 

January 1, 1975; and an unnegotiated check dated April 23, 1975, 

made out by himself and allegedly signed by Sythe for $5,572.50, 

containing a notation that it was a refund of the payment made by 

Dahl. 

The appellant expended considerable effort at trial in 

attempting to prove that direct payments had been made to Maurice 

Sythe, and the respondent devoted a similar effort in attempting 

to rebut these a1 legations. 

The District Court found that: the $20,000 note was executed on February 14, 1974; a real estate mortgage was executed 

and recorded on the same date; one of the terms of the promissory 

note which was incorporated in the mortgage specified the place 

of payment as the Culbertson State Bank; Maurice Sythe endorsed 
the promissory note payable to the Bank and delivered 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, loaned Maurice Sythe $10,000 on November 6, 1974 and 

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

holder" of all the notes and the mortgage; Harold and Geneva Dahl 

have paid only $4,000 on the note assigned to the Bank; $11,000 

with interest from March 31, 1975 is 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 

District Court concluded that all of the terms and conditions of 

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

entitled to have the mortgage enforced and foreclosed and to 

recei ve attorney fees. 

On appeal, the appellant contends that the District Court 

erred in admitting correspondence which the Bank received from 

Maurice Sythe under the "business records" exception to the hearsay rule. It is also contended that there is insufficient evidence to support the judgment. 

With regard to appellant's contention that there is insufficient evidence to support the judgment, we find the Uniform 

Commercial Code control 1 ing. The Di strict Court properly found 

that the Bank was a "holder" of the promissory note, since it was 

in possession of the note which was endorsed by Maurice Sythe. 

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

"holder" and its production of the instrument, it is entitled to 

recover unless the defendant establ i shes a defense. Sect ion 

30-3-307 (2), MCA. 

As previously stated, appellant's sole defense was his 

assertion that 1iabi1 ity had been discharged by payments a1 legedly made directly to Maurice Sythe. However, the affirmative 

defense of payment only discharges the maker's liability on the 

instrument under section 30-3-603, MCA, if payment is made to the 

"holder." The appellant never attempted to prove that payment 
was made to the "holder. He instead attempted to prove that payments 

were made to Maurice Sythe, the original payee. Thus, even had 

the court determined that payments had been made to Sythe, the 

appellant would not have been discharged from liability on the 

instrument. In short, the appellant failed to establish a valid 

defnse and the Bank was entitled to recover under section 

30-3-307 (2), MCA. 

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

assignee of the mortgage which secures the note, it is entitled 

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

owing on the date of commencement. 

Appellant also asserts that the District Court erred in 

admitting correspondence received from Maurice Sythe which 

generally denied that Dahl had made any payments directly to him. 

The two letters which were admitted under the "business records" 

exception to the hearsay rule, over objection, were solicited by 

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

information concerning Dahl 's a1 legations of payment. We need not 

address this issue on the merits, since the evidence could have 

no effect on the 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 if 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 
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