Daily capital journal. (Salem, Oregon) 1903-1919, 1911-10-25


panying contract constitute an agree
ment for liquidated damages or for a
penalty? Third, is the allegations of
the complaint about notice to the de-
fendant Angus sufficient TO charge
him with knowledge of the purpose of
plaintiffs to exercise their option to
sell the land for S24,00OOO? We will
consider these questions in the order
noted.
According to section 1894 L. o. l..
an instrument to be negotiable must
contain, among other things, an un-
conditional promise or order to pay a
sum certain in money. The note in
question bears upon it's face a condi-
tion in these words: This note is
given as a part OF the purchase price
of real property and is secured by
mortgage of even date herewith, and
is subject to all the terms and condi-
tions of said mortgage" Il would be
doing violence to the language TO say
that the note is unconditional when il
expressly says upon its face that it is
subject to conditions. The reference
to the mortgage by the terms Of the
note is in effect making the note and
mortgage one instrument with the
conditions rendering the note non-ne-
gotiable. Bradstreet v Rich, "A Me
1903; In re Commissioners Of Wash
ington Park, 50 ~ Y. 131; Casey v.
Holmes, 10 Ala. 776. Taken in con-
nection with the reference to its ac-
companying mortgage, making them
in effect one instrument as these au-
thorities teach, the note amounts to
a declaration by the makers that al
though they have promised to pay, yet
on the face of the note they reserve
the option of eithe. paying it or with
in one year having II cancelled The
operation of this provision is wholly
within the control of the makers and
amounts to condition destroying the
negotiability of the note.
The case in hand is by this circum-
stance distinguished from the case of
the United States National Bank v.
Floss, 3S Ore. 6S, cited by appellant;
for failure of consideration discussed
there as affecting the negotiability of
the note was not matter within the
control Of the maker In that case
the note was fair and unconditional
on its face. To be sure interest was
unpaid in part, but that was a mere
incident of the principal debt and was
held not to amount TO notice of dis
honor. Although the consideration
was an eXecutory contract, yet there
was no allegation that the holder knew
of any breach of it at the time he pur-
chased the note, hence the plaintiff
in that case was holder of the paper
in due course. Here it is charged
that besides knowing all the condi-
tions contained in the note and mort
gage the defendant, Ferguson, did not
pay any valuable consideration for the
notes; and that it was assigned to him
without consideration and for the
fraudulent purpose of preventing
plaintiff from exercising their right
to have those instruments cancelled.
In order to be holder, in due course,
OF the note in question the defendant,
Ferguson, must come within the pro-
visions Of section $685. L. o. L. as
follows! "A holder in due course is
a holder who has taken the instru-
ment under the following conditions:
(D that it is complete and regular
upon its face; (2) that he became the
holder of 1t before it was overdue, and
without notice that 1t had been previ-
ously dishonored, if such was the
fact; (3) that he took it in good faith
and for value; (4) that at the time it
was negotiated to him he had no no
tice of any infirmity in the instrument
or defect in the title of the person
negotiating It.
The language of the note itself re-
ferring and making it subordinate to
the conditions of the mortgage shows
upon its face that it is not a regular
negotiable instrument. In addition to
that according to the allegations of
the complaint, Ferguson did not take
the note in good faith or for value.
He is therefore not a holder of the
note in due course and according to
section 1891 L. o. l.. a note in the
hands of any holder, other than the
holder in due course, is subject to
the same defenses as if it were non
negotiable. 1t is not necessary to
further elaborate this branch of the
case for in their brief defendants sub
stantially admit that If plaintiffs have
any right to demand cancellation of
the instruments in question, the right
is equally available against both de-
PENDANTS, We conclude that, as against
the defendant Ferguson. the note is
subject and amenable to the attack
made upon it by the complaint and
that as to him the demurrer was not
well taken in that respect
The question of whether the parties
provided for liquidated damages or
for a penalty is next to be considered.
For any ineXcusable violation of a
valid contract the defaulting party
must respond in damages to the ex-
tent of fairly compensating the other
party for the injury he has suffered.
This principle governs every contract
whether there be any express stipula-
ton to that effect or not. By agree
ment of the parties, in proper cases,
this principle may be enforced by a
penalty or a stipulation for liquidated
damages; but even these are not ex-
elusive. The parties may provide for
themselves some other lawful rule of
action. In the case in hand the par
/ ties have chosen not to provide for
the payment of money as the compen-
sation for a possible breach by the de-
fendant, Angus, of his contract to re-
purchase the land at S24,OO0O0 or
cause the same to be done. They
have not fixed any sum of money as
stipulated damages for such breach
OF contract, neither have the left the
damages to be assessed by Jury
/ wit him Lk.. ll...lL.. - !.