Case Name: AUGUST KRUEGER, Respondent, v. JOHN DULAS, and Magdalen A. Dulas, H. S. Posey, and THE STUTSMAN COUNTY BANK OF COURTENAY, NORTH DAKOTA, Appellant
Court: North Dakota Supreme Court
Jurisdiction: North Dakota
Decision Date: 1923-01-29
Citations: 49 N.D. 542
Docket Number: 
Parties: AUGUST KRUEGER, Respondent, v. JOHN DULAS, and Magdalen A. Dulas, H. S. Posey, and THE STUTSMAN COUNTY BANK OF COURTENAY, NORTH DAKOTA, Appellant.
Judges: Birdzell, Johnson, and Christianson, JJ., and Cooley, Dist. J., concur.
Reporter: North Dakota Reports
Volume: 49
Pages: 542–550

Head Matter:
AUGUST KRUEGER, Respondent, v. JOHN DULAS, and Magdalen A. Dulas, H. S. Posey, and THE STUTSMAN COUNTY BANK OF COURTENAY, NORTH DAKOTA, Appellant.
(191 N. W. 1014.)
Opinion filed January 29, 1923.
A. W. Aylmer and A. L. Aylmer, for appellants.
Fowler, Green & Wattam, for respondent.

Opinion:
Statement.
Bronson, Ch. J.
This is an action to foreclose a mortgage upon real estate. The defendant bank has appealed from the judgment and has demanded trial de novo. The facts are: The plaintiff was the owner of some 466 acres of farm land in Stutsman county, North Dakota. In August, 1919, he gave to defendant bank an exclusive contract to sell this land. This contract stipulated a price of $43 per acre to plaintiff and, as commission to defendant bank, the amount received over such price. Also, that, if the land were sold on time, $500 to be paid in cash; $1,500 to be paid on March 1st, 1920; $1,771.29 on November 15th; 1920; and, $1,800 or more, each year thereafter, for a period of ten years at 6 per cent. Further, that plaintiff wanted a chattel mortgage on crops to protect the payments.
In the fall of 1919, defendant bank sold to defendant Dulas the land for a consideration of about $48 per acre. $500 in cash was then paid. In the spring of 1920, a deed and moi'tgage of the lands was presented to plaintiff by the cashier of the defendant bank. Plaintiff objected to the inclusion of commission notes in the mortgage. The cashier explained that plaintiff would not have to pay them; that the purchaser would pay them. The parties went to a local bank in Buffalo. There, in accordance with the testimony of plaintiff and the cashier of that bank, an understanding was had that no chattel mortgage should be given, but that defendant bank would guarantee a note for $1,771.29; that plaintiff, upon inclusion of the commission notes in the mortgage, should receive his money first and, if after -he were paid' and the bank desired an assignment of such mortgage, plaintiff would make such assignment; that the notes of the bank for commission should be subro-gated to the rights of plaintiff and that if plaintiff's notes were not paid defendant bank would not receive any commission. Accordingly, plaintiff made a deed to defendant Dulas, and defendant Dulas and his wife made to plaintiff a mortgage upon the land securing fifteen notes payable to plaintiff. Dive of the notes were commission notes, viz.: One note for $450 due November 15th, 1920; three notes for $421.29 due, respectively, November 15th, 1921, November 15th, 1922, and November 15th, 1923; one note for $117.58 due November 15th, 1924. One note for $1,771.29 was made payable November 15th, 1920. The balance of the purchase price was represented by payments of notes of $1,800 or approximately that amount, falling due in consecutive years commencing November 15th, 1921, and ending November 15th, 1929. Total amount of the mortgage was $19,881.92. Plaintiff received in cash $1,500 additional; defendant bank, $500 in cash upon its commission. Defendant bank indorsed upon the note for $1,771.29 a guaranty of payment. Plaintiff then, without recourse, indorsed the commission notes to defendant bank. This mortgage to plaintiff was recorded in April, 1920. Later, defendant bank collected one commission note for $450. It collected from defendant Dulas $467.23 which was credited on the guaranteed note. It took up this guaranteed note from plaintiff and issued to him a certificate of deposit therefor. With the exception of some interest these are the only payments made to plaintiff on the mortgaged indebtedness. Some correspondence was had between the parties concerning an assignment of the mortgage. On hi ay 15th, 1920, the cashier of defendant bank wrote plaintiff requesting him to sign an agreement which plaintiff stated he would give in regard to the notes which he had signed over to the bank. This agreement provided that plaintiff should assign the mortgage to defendant bank upon the payment of the notes and interest, provided that the bank still held unpaid notes which were also secured by such mortgage and which had been assigned and delivered to it without recourse by plaintiff. Plaintiff made objection to this agreement and never signed it.
This action was instituted in January, 1922, by plaintiff to foreclose the mortgage for the sum of $16,279.18 with interest. Service by publication was secured against defendant Dulas and his wife. They made no appearance. Defendant bank answered alleging the transfer of the notes by plaintiff to it, and the equitable assignment of the mortgage thereby and demanding that the lien of defendant bank be made prior and superior to plaintiff's lien in the mortgage. The trial court found, among other things, that plaintiff, as consideration for the transfer of the notes to defendant bank, made an oral agreement that the commission notes should be deferred in payment and as to security until the amounts due to plaintiff should have been fully discharged; that defendant bank duly transferred one of the commission notes to a third party; that when the sale was consummated plaintiff waived a crop mortgage provision upon securing indorsement and guaranty of the note for $1,771.29 by defendant bank and-upon the understanding that defendant's rights upon such note should be subsequent and inferior to plaintiff's rights; that, when said note matured, defendant bank, through its agreement, took up said note and paid plaintiff the amount due thereon. Accordingly, the court ordered judgment of foreclosure, awarding a preference lien to plaintiff for the amount of the indebtedness, including interest and taxes paid, subject only to a prior lien for the commission notes sold to a third party. Pursuant to such findings judgment was entered..
It is the principal contention of the defendant bank that the oral agreement, if made to defer the lien of its security, was without consideration and inadmissible because it served to vary the terms and the legal effect of a written instrument; that, as a matter of law, the indorsement of the commission notes by plaintiff to defendant bank carried as an incident thereto a pro rata assignment which granted to the transferee a superior lien.
Decision.
The issue upon this appeal concerns alone the commission notes held by defendant bank.- No questions are presented concerning the priority of the commission note transferred to an innocent purchaser, or the inferiority of the note guaranteed by defendant bank.
We are of tbe opinion that tbe findings of tbe trial court, concerning the actual contract made between tbe parties, should be sustained.
Accordingly, tbe whole transaction between tbe parties consisted of an agreement that plaintiff should receive tbe purchase moneys owing to him and shoidd have a preference lien through tbe mortgage to secure the same. This agreement was consummated and evidenced through commission notes payable to plaintiff, secured by tbe mortgage, and transferred by plaintiff to defendant bank, to whom they were due, and secured by lien of tbe mortgage running to plaintiff. Tbe oral agreement and tbe letter of tbe defendant bank further evidenced this agreement, that plaintiff should have a preference lien for bis pinchase money notes.
Did this oral agreement serve to vary tbe terms of tbe contract of endorsement upon tbe commission notes as made by plaintiff and thus violate tbe rule against tbe admission of parol evidence for such purpose ?
It is evident that negotiable instruments were executed in this case for purposes of negotiability. That plaintiff made bis indorsement to defendant bank for purposes of negotiability. It has been said that a negotiable note is a courier without luggage. Overton v. Tyler, 3 Pa. St. 346, 45 Am. Dec. 645. Its contract obligations, through tbe language of negotiability, attach by legal prescription, impliedly. It must contain certain indicia to establish its status and, equally, must not contain certain other things. 4 Wigmore, Ev. § 2443. It is well established that by a special agreement, even by parol, tbe parties to a negotiable instrument may alter or change the application or effect of certain implied obligations contained in a note so far as tbe same affects themselves. 4 Wigmore, Ev. § 2444; 1 Dan. Neg. Inst. 5th ed. § 6717. Thus, the expressed terms of the obligation in a document, such as the mode, the time, or the amount of payment, etc., may not be varied by an extrinsic agreement to avoid their enforcement. But, concerning the implied terms, an extrinsic agreement can be used where the transaction in hand, as a whole, preserves, for one purpose, the form of negotiability and, for another or separate part of the transaction, presents a different contract, feasible and consistent. 4 Wigmore, Ev. § 2444. See 8 C. J. 1033; 22 C. J. 1089.
Plaintiff made a qualified indorsement upon the commission notes. Thereupon certain implied obligations were annexed by law. He became a mere assignor of the title to the notes. . Comp. Laws, 1913, § G923. Thereupon he impliedly warranted that the instrument was genuine and in all respects what it purported to be; that he had good title; and all prior parties had capacity to contract; that he had no knowledge of any fact which would impair the validity of the instrument or render it valueless. Comp. Laws, 1913, § 6950. See note in Ann. Cas. 1912A, 923.
Furthermore, by operation of law, in the absence of any agreement to the contrary, the transfer of the commission notes carried with them their security. Comp. Laws, 1913, § 6733. See note in 2 L.R.A. (N.S.) 183. No formal assignment of the mortgage was necessary so to do. Brynjolfson v. Osthus, 12 N. D. 42, 49, 96 N. W. 261.
However, it was competent for the parties, by an extrinsic agreement, to assign this mortgage security and to define the relation that would exist between them by virtue thereof. 27 Cyc. 1304. 1 Jones, Mortg. § 817, 821.
The extrinsic agreement between the parties in the instant case served that purpose. There is no question that an assignment of the security took place. The question is, Did it take place, pursuant to the rule applicable where an assignment of the debt occurs, or pursuant to the extrinsic agreement of the parties in connection with the transfer of the notes ?
An antecedent agreement was made between the parties pursuant to which the commission notes were indorsed in order to effectuate this agreement, transfer title to the commission notes to the defendant bank, and, otherwise, fix the rights between the parties pursuant thereto. In our opinion proof was properly received concerning this extrinsic agreement. Such proof did not violate nor vary any of the implied obligations of plaintiff's contract of qualified indorsement. The enforcement of this extrinsic agreement is consistent with plaintiff's qualified in-dorsement. If defendant's contention should be sustained, plaintiff's indorsement might be given the effect of a general indorsement. Gumbel v. Boyer, 46 La. Ann. 1499, 16 So. 466. Further, under the circumstances, the exclusion of such extrinsic agreement might well serve purposes of an attempt to enforce a fraud upon plaintiff's rights pursuant to the equities arising out of an antecedent transaction. See Dick inson v. Burke, 8 N. D. 118, 120, 77 N. W. 279. Tbe judgment is affirmed witb costs.
Birdzell, Johnson, and Christianson, JJ., and Cooley, Dist. J., concur.
Mr. Justice Nuessle, disqualified, did not participate, Honorable Chas. M. Cooley, District Judge,-sitting in bis stead.