Case Name: BRADSTREET et al. v. CROSBIE
Court: Oklahoma Supreme Court
Jurisdiction: Oklahoma
Decision Date: 1926-09-21
Citations: 123 Okla. 269
Docket Number: No. 17126
Parties: BRADSTREET et al. v. CROSBIE.
Judges: 
Reporter: Oklahoma Reports
Volume: 123
Pages: 269–272

Head Matter:
BRADSTREET et al. v. CROSBIE.
No. 17126
Opinion Filed Sept. 21, 1926.
Rehearing Denied Feb. 22, 1927.
Aby & Tucker and Hagan & Gavin, for plaintiffs in .error.
C. A. Steele and W. A. Daugherty, for defendant in error.

Opinion:
Opinion by
FOSTER, C.
An action was brought by the plaintiff in error, Delight Bradstreet, as plaintiff, in the district court of Tulsa county, to cancel a mortgage held by the defendant in error, J. E. Crosbie. upon certain real property located in the city of Tulsa. Subsequently, L. G. Bradstreet, the husband of Delight Bradstreet, intervened in' the action, also seeking the cancellation of the mortgage and' a promissory note which the mortgage purported to secure. An answer was filed by the* defendant in error, and also a cross-petition, wherein he sought judgment foreclosing said mortgage.
Trial resulted in a judgment of foreclosure against both Delight Bradstreet and L. G. Bradstreet, and a personal judgment against R. G. Bradstreet individually for the sum of $22,017.13, plus interest and attorneys' fees. From this judgment, and from an order overruling their motion for a new trial, both the original plaintiff, Delight Bradstreet, and the intervener, R. G. Bradstreet, appeal.
After judgment foreclosing the mortgage, and on the same day plaintiffs in error's motion for a new trial was overruled, the trial court, on the application of defendant in error, appointed a receiver for the premises covered by the mortgage. Immediately after the appointment plaintiffs in error moved the court to vacate the order, and when their motion so to do had been overruled reserved an exception to the ruling of the court.
It was charged by plaintiffs in error, both in the amended petition of Delight Bradstreet and in the petition in intervention of L. G. Bradstreet, that the note and mortgage in controversy here were not supported by any consideration.
The record discloses that prior to June. 29, 1923, both the defendant in error and plaintiff in error, L. G. Bradstreet, were interested in certain oil corporations located in tile city of Tulsa, Among other .corporations L. G. Bradstreet was president of Bradstreet & Braden, Inc., and owned 60 per cent, of its stock. The other 40 per cent, was owned by O. E. Braden and wife.
J. E. Crosbie was likewise interested in several corporations, among them being the Little Fay Oil Company, of which he was president. Prior to January 29, 1923, Bradstreet & Braden, Iric., and J. E. Crosbie purchased the 10/16tlis interest in an oil and gas lease designated in the record as the school land lease, each taking the 5/16ths interest therein. This lease was operated for some time by J. E. Crosbie.
The Bradstreet companies did not prosper, and Bradstreet & Braden, Inc., soon' was unable to meet its share of the operating expenses of the school'land lease, and was also about to default in payment of certain notes given for its share of the purchase price of said lease. It thereupon negotiated a sale of all its properties to Schaffer Oil & Refining Company. The property of all the other companies in which Bradstreet was interested was included in the sale. At this time Bradstreet & Braden, Inc., owed, as its share of the operating expenses of the school land lease, a considerable sum of money. Out of the proceeds of the sale to the Schaffer Company it paid $25,000 of this debt in cash and executed its note for about $18,000, on January 29> 1923, to Little Fay Oil Company, a corporation, due 90 days thereafter.
This note was indorsed by L. G. Bradstreet individually. It also paid out of the proceeds of this sale other obligations, among them being some of its notes given in payment of the purchase price of the school land lease, which were then held by the Central National Bank of Tulsa. In the fall of 19231 Bradstreet & Braden, Inc., having defaulted in the payment of its note to Little Fay Oil Company, Crosbie procured from L. G. Bradstreet, on November 19, 1923, a note for some $22,000, secured by a mortgage on Bradstreet's home in the city of Tulsa, signed and acknowledged by his wife, Delight Bradstreet, for which he surrendered the note of January 29, 1923, executed by Bradstreet & Braden, Inc., to Little Fay Oil Company.
At the time this note was given, to wit, November 19, 1923, Bradstreet & Braden was insolvent, and the note of January 29, 1923, ,was worthless.
This note and the several renewals thereof, together with the mortgage purporting to secure it, form the basis of the instant action. At the request of plaintiffs in error the trial court made and filed findings of fact and conclusions of law. The trial court, among other things, found as follows:
"That the real estate mortgage to secure the indebtedness herein covers the homestead of plaintiff and intervener, who are husband and wife, and was the' homestead for sometime prior to the execution of said mortgage, and at all times since its execution to the present time. The court fiilds that the indebtedness represented herein- and secured by said mortgage was given to pay and satisfy the running expenses of the school land lease referred to in the evidence, said expenses being due to the defendant by Bradstreet & Braden, Inc. "
The case at b.ar is one of equitable cognizance, and this court will review the entire record, and render or cause to be rendered such judgment as the trial 'court should have rendered. Schock v. Fish, 45 Okla. 12, 144 Pac. 584. Plaintiffs in error contend that the trial court erred in holding that the note and mortgage of November 19, 1923, were executed for a good and valuable consideration. The trial court found that the note and mortgage of November 19, 1923, were given to pay and satisfy the running expenses of the school land lease due to the defendant from Bradstreet & Braden, Inc.
The right of J. E. Crosbie to enforce the original obligation against Bradstreet & Bra-den, Inc., may not be questioned. Primarily, the original debt is and has always been the debt of Bradstreet & Braden, Inc.
The asserted claim of J. E. Crosbie of right to recover therefor upon a promissory note executed by L. G. Bradstreet individually, and secured by a real estate mortgage upon his homestead, suggests at once the questión of whether the note is supported by any consideration. The basis for this claim must necessarily be found in the notes of January 29, .1923, and of November 19, 1923.
The first note of January 29, 1923, was given by Bradstreet & Braden, Inc;, to Little Fay Oil Company, a corporation. Since the trial court found the indebtedness was due not to Little Fay Oil Company, but to Cros-bie, it must follow that the note was unenforceable, because made payable to a payee to whom Bradstreet & Braden owed nothing, unless the circumstances that it was indorsed by L. G. Bradstreet individually should render it enforceable as to him, or unless there was a transfer of the debt by Crosbie to Little Fay Oil Company prior to the execution of the note. Section 7098, O. O. S. 1921, provides:
"Absence or failure of consideration is a matter of defense as against any person not a bolder in due course. "
In First National Bank v. Gibbs (Ind.) 141 N. E. 264, it is said:
"As between tbe accommodating and tbe accommodated parties, no consideration is a proper defense. Shireman v. Second National Bank, 72 Ind. App. 256, 124 N. E. 712. Tbis is true whether tbe accommodating party is drawer or indorser."
We fail to find any evidence in tbe record of a transfer of tbe original debt by Crosbie to Bittle Fay Oil Company prior to tbe note1 of January 20, 1923. It is not unreasonable or unequitable to require of defendant in error, Crosbie, actual proof of such transfer in view of -the court's finding that the indebtedness was due to Crosbie individually.
Crosbie is seeking to recover of Bradstreet a debt originally due from another, and Cros-bie is not in position to complain if be is required to make strict proof of his claim in the premises. Tbe general rule is stated in 5 C. J. 100®, as 'follows:
"An assignee suing to recover in bis own right on an assigned chose in action or contract must plead tbe fact of assignment by direct averment."
See, also, Lapique v. Denis (Cal. App.) 139 Pac. 237.
It follows, we' think, clearly, that tbe note of January 29, 1923, was unenforceable, because admittedly Bradstreet & Braden, Inc., owed nothing to tbe payee therein, and being unenforceable against tbe payee it was unenforceable against Bradstreet, tbe accommodation indorser. Tbe question then recurs: Can tbe surrender of a legally unenforceable negotiable note constitute a valuable consideration for tbe assumption by a third party of a debt for which be is not otherwise liable? If not, there is no consideration to support tbe note of November 19, 1923, and tbe mortgage given to secure it. Tbe principle that the surrender of an unenforceable promissory note of a third party cannot constitute a consideration for tbe giving of a note and mortgage by another is clearly established by tbe following authorities: Widger v. Baxter (Mass.) 76 N. E. 509; Seager v. Drayton (Mass.) 105 N. E. 461.
There remains for consideration tbe question whether tbe forbearance of defendant in error, Crosbie, to sue Bradstreet & Braden, Inc., for tbe operating expenses due him from said corporation can supply a consideration for tbe note and mortgage here in controversy.
It is contended that tbe forbearance of Crosbie to sue Bradstreet & Braden, Inc., on its debt to him for tbe operating expenses of the school land lease, was a sufficient consideration for the note of November 19, 1923, on tbe theory that- tbe unenforceable note of January 29, 1923, did not extinguish tbe original debt. But tbe original debt was not tbe debt of Bradstreet, but was tbe debt of Bradstreet & Braden, Inc., for which be was neitEer legally nor morally bound. Still Bradstreet, though a stranger to tbe obligation, might bave become liable on bis note of November 19, 1923, if Crosbie suffered any. detriment by giving up bis right to sue tbe corporation.
According to the great weight of tbe evidence Bradstreet & Braden, Inc., was an insolvent corporation, destitute of assets at tbe time tbe note of November 19, 1923, was executed, and Crosbie's debt was therefore worthless. Crosbie, in giving up bis right to sue tbe corporation, gave up no valuable right unless tbe right to pursue a worthless claim in tbe courts can be said to be a valuad ble right.
In Citizens Trust Co. v. McDougald, 132 Tenn. 323, 178 S. W. 432, it is said:
"In the case before us it appears that tbe note was made payable directly to the bank. Nominally, there was a loan to McDougald, but the bank paid out no money. It simply credited the proceeds on a worthless note which it held on tbe Peoples Gin Company, an insolvent corporation, for whose obligations McDougald was in no way responsible. Tbe judgment was correct. There was no consideration for tbe note. It is true,, that under tbe Negotiable Instruments Daw, contrary to tbe rule formerly prevailing in this state, a pre-existing debt may now stand for value, but tbis is not true where such pre-existing debt is worthless at tbe time and tbe obligation of a third party (citing authorities). Such was tbe present case. The bank was not therefore a bolder for value."
See, also, Williams v. Nichols (Mass.) 10 Gray 83; Schroder v. Fink, 60 Md. 436.
Tbe principle to be deduced from tbe above authorities is that tbe forbearance of a valueless right of action against an insolvent corporation destitute of assets cannot constitute a consideration for an assumption by a third party of a debt for which be is not otherwise liable.
Tbe contention that there was a dispute between Crosbie and Bradstreet, as to whether Bradstreet was individually liable for tbe debt of tbe corporation, and that the note was given in settlement and compro mise of a disputed claim, is without merit. There could be no legitimate claim that Bradstreet was personally liable for the original debt of the corporation, or was any such claim made.
At the time of the execution of the note of November 29, 1923, the claim then made was that Bradstreet was liable on his personal indorsement of the unenforceable note of January 29, 1923, to Little Fay Oil Company.
Defendant in error contends that there was a debt due Crosbie from Bradstreet & Braden, Inc., of some $2,000 for operating expenses on the Charity Davis lease, and the satisfaction of this debt was a good consideration for the note and mortgage in controversy.
The trial court, however, found that the indebtedness represented by a note and mortgage in question arose from the operation of the school land lease. The correctness of this finding is not brought here for review by a cross-petition of defendant, and it is therefore not for our consideration. It is our conclusion that the note of November 19, 1923, the several renewals thereof, and the mortgage executed by plaintiffs in error securing the same, involved in this action, were all executed without consideration, and the trial court therefore erred in not canceling both note and mortgage. Other propositions are discussed in the briefs of the parties, but in view of the conclusion reached that the instruments referred to were not supported by any consideration it is not necessary to notice them.
The judgment of the trial court is therefore reversed, and the cause remanded, with directions to the trial court to set aside its judgment herein, and render judgment canceling t£e note and mortgage of November 19, 1923, as prayed for by the plaintiffs in error, and that the order made by the trial court, after judgment, appointing a receiver for the properly, be vacated, the receiver discharged, and the property restored to plaintiffs in error.
By the Court: It is so ordered.