Title: LW Wentzel Implement Co. v. State Finance Co.
Citation: 63 N.W.2d 525
Docket Number: 7428
State: north-dakota
Issuer: north-dakota Supreme Court
Date: March 1, 1954

63 N.W.2d 525 (1954) L. W. WENTZEL IMPLEMENT CO. v. STATE FINANCE CO. No. 7428. Supreme Court of North Dakota. March 1, 1954. *526 Day, Stokes, Vaaler &amp; Gillig, Grand Forks, for plaintiff and appellant. Lyche &amp; Lyche, Grand Forks, for defendant and respondent. MORRIS, Chief Justice. This is an action to recover on a promissory note from an endorser thereof. The note, dated December 19, 1949, was executed by one Vernon S. Hoppe in favor of Elmer T. Nygren in the sum of $1700 and bearing interest at six per cent. It was due October 1, 1950. On December 27, 1949, Nygren borrowed $300 from the defendant and as collateral security for this loan turned over to the defendant the Hoppe note, on the back of which he placed the following signed endorsement: In November 1949 Nygren had purchased an automobile from the plaintiff, the purchase of which had been financed by the Commercial Credit Corporation. That obligation was guaranteed by the plaintiff. Nygren defaulted in his payments on the automobile and the plaintiff ultimately made good on its guarantee to the Commercial Credit Corporation. In the meantime the plaintiff discovered that the defendant held Hoppe's $1700 note as collateral security to Nygren's $300 loan. The plaintiff then sent its bookkeeper, Mr. Nelson, to the defendant's office to pay the amount due on Nygren's loan, which was $286.82. Nelson gave the defendant's manager a check for that amount and procured the note, upon which was placed the following endorsement: Nygren defaulted on the payments on the automobile. Hoppe never paid his note and filed a petition in bankruptcy. The plaintiff seeks to recover the face of the Hoppe note with interest from the defendant and alleges that it was delivered to the plaintiff for value prior to maturity and that the maker has been discharged in bankruptcy proceedings. The defendant in its original answer under which the case was tried denies *527 that it endorsed the note to the plaintiff and alleges that on or about February 3, 1950, by virtue of an arrangement with Nygren the plaintiff paid off the balance owing on Nygren's loan from the defendant and thereupon undertook to release its interest in the note and mortgage and to assign that interest to the plaintiff but did not intend to endorse the note or guarantee payment thereof, as the plaintiff well understood, and that if the language employed purports to be an endorsement or guarantee it is the result of mutual mistake of the parties, and that the defendant is entitled to have the note reformed so as to correct and overcome the mutual mistake. The defendant also alleges there was no consideration passing from the plaintiff to the defendant for the endorsement. The defendant amended his answer setting up further defenses of material alteration and failure of the plaintiff to present the note for payment as required by Chapter 41-07, NDRC 1943. Over objection of the plaintiff the defendant was permitted to file a second amended answer and counterclaim. In the counterclaim the defendant alleges that: The defendant then adds to its prayer for relief a demand The trial court held against the defendant on the issues of material alteration and failure to present the note for payment. His rulings with respect thereto are clearly correct and no questions regarding them are presented on this appeal. The question as to the proper pleading to be considered by this court on trial de novo presents no serious problem here. The plaintiff argues that the allowance of the last amendment by the trial court was error. But as we view the case the last amended answer introduced no new issues and merely added a prayer for relief through reformation. The facts upon which this prayer was based had been pleaded in the former answers. The original answer, while containing no specific prayer for reformation, did allege: These allegations were incorporated in the amended answers. The action instituted by the plaintiff being for the recovery of money only upon the liability of endorser upon a promissory note was legal in its nature. Relief by way of reformation of an instrument is equitable but that does not mean that equitable relief cannot be granted in a legal action or that equitable defenses may not be interposed. In this state the distinction as to form between *528 actions at law and suits in equity has been abolished. Section 32-0109, NDRC 1943 provides that there shall be but one form of action for the enforcement or protection of private rights and the redress of private wrongs. Section 28-0741 NDRC 1943 requires that in the construction of a pleading for the purpose of determining its effect its allegations shall be liberally construed with a view to rendering substantial justice between the parties. In French v. State Farmers' Mutual Hail Ins. Co., 29 N.D. 426, 151 N.W. 7, 9, L.R.A.1915D, 766, this court held that an insurance contract may be reformed and a recovery had thereon in the same action. It was also held: This court went on to state: In his order for amendment the trial court clearly sets forth his reasons for allowing it, as follows: We agree with the trial court in this statement and it is clear to us that he did not abuse his discretion in allowing the amendment. Over the objection that oral testimony could not be introduced to vary the terms of a written instrument, Mr. Fossum, manager of the State Finance Company, was permitted to give the following testimony, in substance: Mr. Nygren made an application for a loan of $300 and as security offered *529 the Hoppe note. This note was accepted by the defendant as collateral security for the loan. Some time later Fossum received a phone call from the Wentzel Implement Company wherein a representative of the company inquired whether Fossum was holding the $1700 Hoppe note as collateral and advised that plaintiff wanted to pay off the amount due from Nygren and requested that Fossum "assign this seventeen hundred dollar note to them as collateral that I was holding." The next step appears to be that Fossum asked Nygren whether it was agreeable to him if the plaintiff paid off his account and Fossum would turn over the note he was holding as collateral to the Wentzel Implement Company and Nygren replied: yes. This was either the same day or the day after Fossum had received the call from the plaintiff company. The third step in the transaction, according to Fossum, occurred when a Mr. Nelson, who was the bookkeeper and an officer of the plaintiff, called at Fossum's office and informed him that he was from the Wentzel Implement Company and that he was there to pay off the Elmer Nygren account. Nelson gave Fossum a check on behalf of the plaintiff company payable to the State Finance Company in the sum of $286.82, which was the balance of the Nygren account, "and requested that I assign the note in question to the Wentzel Implement Company." Nygren's note for $300, representing his debt to the State Finance Company, was then cancelled and turned over to him. The transaction between Nelson and Fossum took place on February 3, 1950. Fossum heard nothing further about the matter until over two and one-half years later when plaintiff's attorney phoned him to the effect that he had the $1700 note for collection. Fossum then states: "Well, in our conversation I found out that I had neglected to put in the words `Without recourse' in the assignment." Fossum then went to the office of L. W. Wentzel, president of the plaintiff company, who advised Fossum that the matter had been turned over to the plaintiff's attorney and Fossum says: "He admitted to me that it was an assignment, that he knew that he wasthat he was taking over this note to be used as collateral for this deal he had with Nygren", and that Wentzel stated he would have taken over the note whether the words "Without recourse" had been in the assignment. Fossum further stated that he had typed and signed the endorsement or assignment on the back of the note. L. W. Wentzel, the president of the Wentzel Implement Company, was called for cross-examination under the statute and over the objection that the testimony tended to vary the terms of a written contract, testified, in substance, as follows: Nygren was dealing with the plaintiff for an automobile and called at Wentzel's office approximately in the first part of February 1950. Still later in his testimony Wentzel says: Mr. Wentzel did not testify on direct examination and did not deny the statements attributed to him by Fossum. The only two witnesses in the case are Fossum and Wentzel. The trial court found that the defendant did not own the Hoppe note and had no legal right to sell it. He further found that neither of the parties intended that the defendant should either guarantee the Hoppe note as an endorser or sell it but understood that it was to be released to Nygren and assigned to the plaintiff by him and as a shortcut it was assigned direct to the plaintiff; that the plaintiff did not ask the defendant to pay the note until a year and a half or more after it had become due and that the defendant was not advised of the nonpayment of the note at the time the plaintiff received notice of the filing of a petition in bankruptcy by the maker some three months before this action was instituted. The court also found that the parties intended only that the defendant should assign the note to the plaintiff and that the language used in the endorsement was understood by both parties at the time to be an assignment and it was intended by them to be such and that the parties used this language through mutual mistake and that the defendant is entitled to have the instrument reformed so as to cure the mistake and make it reflect the actual intent and understanding of the parties by adding and inserting therein the words "Without recourse" immediately following the words "for value received." We agree with the trial court that if the endorsement be not considered an assignment but an unqualified endorsement carrying with it the liability of a general endorser, it does not express the intent of the parties and that as so construed the language was adopted through a mutual mistake. The plaintiff initiated the negotiations culminating in the transfer of the $1700 note. The transaction was largely for the plaintiff's benefit. When its president learned that the defendant held a note payable to Nygren in the sum of $1700 as collateral security for Nygren's $300 debt to the defendant, he undertook negotiations to obtain that note as security for the debt that Nygren owed on the automobile and which the plaintiff had guaranteed. The transfer was arranged with the consent of Nygren and it was agreed that the plaintiff would pay the debt due the defendant and secure a transfer of the collateral note to the plaintiff. The inherent nature of the transaction tends to support the defendant's contention that the endorsement which on its face purports to be an assignment was that and nothing more and negatives the plaintiff's contention that in order to collect $286.82 owed by Nygren the defendant sold the collateral note to the plaintiff for that amount and assumed the liability of an endorser to the full extent of $1700 and interest. It is significant that any assertion of liability against the defendant was long delayed. It is a fair assumption under the circumstances here presented that the possible liability of the defendant for the full amount of the collateral note did not occur to either Mr. Fossum, Mr. Nelson, or Mr. Wentzel until the latter turned over the note for collection. The plaintiff stands squarely upon the proposition that it seeks to recover upon a written contract and that the contract cannot be contradicted or varied by parol evidence and that all of the evidence of the defendant relative to the transaction which culminated in the endorsement was inadmissible. Counsel for plaintiff cites Routier v. Williams, 52 N.D. 793, 204 N.W. 678, wherein this court held in the syllabus: The note on its face contains the following provision: The rule stated in Routier v. Williams, supra, is supported by the great weight of authority. Brannan's Negotiable Instruments Law, 6th Ed., Section 66; 8 Am. Jur., Bills and Notes, Section 1096; Annotations 4 A.L.R. 803; 11 A.L.R. 637; 22 A.L.R. 527, 35 A.L.R. 1120, 54 A.L.R. 999, 92 A.L. R. 726; Bank of Conway v. Stary, 51 N.D. 399, 200 N.W. 505, 37 A.L.R. 1186. To the general rule thus stated there are exceptions, especially as between the endorser and the endorsee. As one of these exceptions we find that parol evidence is admissible as between an endorser and an endorsee of a promissory note to show that the endorsement was merely to transfer legal title to the endorsee. Dickinson v. Burke, 8 N.D. 118, 77 N.W. 279; Sawyer State Bank v. Sutherland, 36 N.D. 493, 162 N.W. 696; Monroe v. State Bank, 181 Wis. 19, 193 N.W. 991, 35 A.L.R. 1115. The defendant urges that this exception is applicable to the facts of this case. The exception seems to apply where the transfer was without consideration. In this case the transfer was primarily for the accommodation and benefit of the plaintiff but the defendant did receive payment of the balance due it on the Nygren debt and to that extent was benefited by the transaction. It appears to us that the only theory upon which the parol evidence was admissible was that under the allegations of the defendant's answer the endorsement, because of a mistake in its terms, did not set forth the true intention and agreement of the parties and that the defendant was entitled to have it reformed so as to express that agreement. On this question Susquehanna S. S. Co. v. A. O. Andersen &amp; Co., 239 N.Y. 285, 146 N.E. 381, 383, is in point. Judge Cardozo, speaking for the Court of Appeals of New York, says: The section of the New York Code quoted by Judge Cardozo finds a counterpart in our Section 28-0715, NDRC 1943 which provides: The endorsement in this case was in the form of an assignment to which the law, according to the majority rule, gives the effect of an unqualified endorsement. Brannan's Negotiable Instruments Law, 7th Ed., Section 31, page 601, Section 34, page 606, Section 38, page 624; 8 Am.Jur., Bills and Notes, Section 546. But the defendant set up in its answer that the language used was the result of a mutual mistake and did not express the intent of the parties which was that the defendant only "assigned" and did not guarantee payment in any form of the note and that the defendant is entitled to have the endorsement reformed to correct the mistake. When the issue is whether or not a written instrument should be reformed because of a mutual mistake, parol evidence is admissible to show how the instrument should be corrected in order to conform to the agreement or intention of the parties. Forester v. Van Auken, 12 N.D. 175, 96 N.W. 301; 45 Am.Jur., Reformation of Instruments, 113; 76 C.J.S., Reformation of Instruments, § 83b. The trial court did not err in admitting parol evidence for the purpose of showing that the endorsement did not express the true agreement and intention of the parties and that it was not intended that the defendant should accept the liability of a general endorser. Neither did he err in determining that the defendant is entitled to have the endorsement reformed so as to express the true agreement and intention of the parties. The judgment appealed from is affirmed. BURKE, SATHRE and GRIMSON, JJ., concur.