Court Opinion

ID: 8751192
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:28:20.98344+00
Date Added: 2024-06-11T17:00:58.551731
License: Public Domain

CALDWELL, Circuit Judge
(dissenting). The suit is to foreclose a mortgage. The mortgage and notes are to be treated “as one instrument or as contemporaneous agreements relating to the same subject-matter.” The provision in the note relating to the law by which it is to be construed is to be read into the mortgage, and the provision of the mortgage relating to the maturity of the mortgage debt upon failure to pay any part of it at maturity is to be read into *228the notes. This much has been distinctly decided by the Supreme Court of the United States in Moline Plow Co. v. Webb, 141 U. S. 616, 623, 12 Sup. Ct. 100, 35 L. Ed. 879.
By what law is the provision in the mortgage relating to the maturity of the mortgage debt to be interpreted and construed? There can be but one answer to this question. The well-settled rule on this subject is “that contracts are to be governed, as to their nature, their validity, and their interpretation, by the law of the place where they were made, unless the contracting parties clearly appear to have had some other law in view.” Liverpool Steam Co. v. Phenix Ins. Co., 129 U. S. 397, 453) 9 Sup. Ct. 469, 32 L. Ed. 788.
Under the operation of this fundamental rule, the contracts in suit are Kansas contracts, and are to be governed, as to their nature, validity, and their interpretation, by the laws of that state. This general rule was in harmony with the desire and intention of the parties to these contracts, but they were not willing to let the question rest on this ■ general rule of law alone, and they accordingly made their own law on the subject, as they had an undoubted right to do, and declared, in terms, that the contract should be “construed by the laws of the state of Kansas in every particular.” This provision, though found in the principal note alone, is, as we have seen, to be read into the mortgage. The contracts were made in Kansas, and, in express terms, the notes are payable there.
It is well settled that it is competent for the parties to a contract to agree as to what law shall govern in its construction and enforcement. Pritchard v. Norton, 106 U. S. 124, 136, 1 Sup. Ct. 102, 27 L. Ed. 104; Coghlan v. South Carolina R. Co., 142 U. S. 101, 109, 12 Sup. Ct. 150, 35 L. Ed. 951; London Assurance v. Companhia de Moagens, 167 U. S. 149, 161, 17 Sup. Ct. 785, 42 L. Ed. 113; Mutual Life Ins. Co. v. Cohen, 179 U. S. 262, 21 Sup. Ct. 106, 45 L. Ed. 181; Liverpool Steam Co. v. Phenix Ins. Co., 129 U. S. 397, 458, 9 Sup. Ct. 469, 32 L. Ed. 788.
Moreover, the parties to a contract may provide their own statute of limitations, and may provide a different period of limitations from that provided by statute. 1 Wood on Limitations, § 42.
What was the legal effect of this contract when and where it was made? Manifestly, by the law of Kansas, as interpreted by the Supreme Court of the state, the default in the payment of any part of the mortgage debt at its maturity had the effect to mature the whole debt,_ and start the statute of limitations to running against the same.
Fifteen years before the mortgage in suit was executed, the Supreme Court of Kansas, speaking by Judge Brewer, now Mr. Justice Brewer, said:
“The mortgage was given to secure the payment of the three notes. It was executed contemporaneously with them. They form one contract, and are to be construed together, and so as to give force to the terms of each. 2 Pars, on Contr. 15; Round v. Donnel, 5 Kan. 56; Muzzy v. Knight, 8 Kan. 457. It contained this stipulation that, if any part of the money secured by it should not be paid when it became due, then all should immediately become due and payable. There is no contradiction between this and the notes. It might all have been placed in one instrument, and the contract thus set forth would have been consistent and clear. The payor, performing this contract, *229would have six, twelve, and eighteen months, respectively, to make good his several promises, but, failing to keep his first promise, lost further time to perform the remainder. It was a contract the time of whose performance depended upon certain conditions. This clause is inserted in mortgages usually for the benefit of the mortgagee, but, being a valid stipulation, the mortgagor has equal right to insist upon it, and receive whatever advantage he can from its enforcement. When the payor at the expiration of six months failed to pay the note then due, by the terms of the contract all three notes became due. The statute of limitations began to run on all, and a subsequent purchaser purchased after maturity. The defendants therefore have a right to interpose any defense in this suit that they could if the original parties to the contract were the sole parties to the suit Basse v. Gallegger, 7 Wis. 446 [76 Am. Dec. 225]; Noyes v. Clark, 7 Paige, 180 [32 Am. Dec. 620]; 27 Eng. Com. Law, 27; People v. Superior Court of City of New York, 19 Wend. 104.” National Bank v. Peck, 8 Kan. 660.
The doctrine of that case has been firmly adhered to from that time to the present. Stanclift v. Norton, 11 Kan. 218; Lewis v. Lewis, 58 Kan. 563, 50 Pac. 454; Douthitt v. Farrell, 60 Kan. 195, 56 Pac. 9.
All contracts which are construed within the state in which they are made and to be performed must be construed according to the law of that state. What is the law of the state? It is a grave error to suppose the law of a state consists only of its statutes. In Chamberlain v. Beller, 18 N. Y. 115, the Court of Appeals of New York said:
“The counsel for the appellants seems to assume that when the statute declares that the bond, to be valid, must be taken in a case ‘provided by law,’ it means statute law. This certainly is an error. Statutes, in this state, as every educated person knows, are not the only law. Some sanguine juridical philosophers have been aiming at that end, but the end yet remains to be attained. Until that judicial millennium shall have arrived, we must be content to submit to the law of unwritten principles as well as to that supposed to be more certain—of written rules.”
Upon this very question Justice Brewer, when Circuit Judge, recognized the decisions of the courts of a state as constituting the law of the state on this subject, and, following that rule, decided a case in Nebraska contrary to his own convictions as to the law. He said:
“This has become the settled law of the Supreme Court of Nebraska and of the United States Circuit Court for this district, and, being a rule of property, must, upon the principle of stare decisis, be followed, irrespective of any personal opinions of the present judge.” Richardson v. Warner, 28 Fed. 343.
In like manner the same learned justice gave effect to a decision of the Supreme Court of Missouri, and treated it as establishing the law of the state upon this question. He said:
“In the case of Noell v. Gaines, 68 Mo. 649, the question was presented to the Supreme Court of this state, and by it it was held that such stipulation was absolute and general; that it made all the notes due, and due for all purposes. * * * Independent of that decision, it is in accord with my own views of what the law is. It is elementary that where two instruments are executed at the same time, having reference to the same transaction, they are to be construed as though there was but one instrument. Now, here, according to the averments of this petition, this mortgage and this deed of trust were execute'd at the same time, and to secure these notes; they were parts and parcels of one transaction, and are to be construed as one instrument; and if there were but one instrument, and that containing a proviso to pay money at three separate times, with a promise that, upon a failure to pay the first sum at the time named, all should become due, I cannot see how, logic*230ally, we can escape the conclusion that the parties have made an absolute, unconditional stipulation, operative under all circumstances and for all purposes. I had occasion, when I was on the supreme bench of my own state, to consider this matter in two or three eases, and that was the conclusion I thencame to, and it is unchanged. I am aware that Judge Hough, in his dissenting opinion, suggests certain contingencies in which the application of this rule, where there are several negotiable promissory notes secured by mortgages or deeds of trust, might work out some embarrassments, but still I do not think that the possibility of such embarrassments can avoid the clear force of the language the parties have used. I do not see why they cannot make such a contract, and if they made it, and its language is clear, I do not see why the courts should not give force and effect to it.” Manufacturing Co. v. Howard (C. C.) 28 Fed. 741.
In London Assurance v. Companhia de Moagens, 167 U. S. 149, 17 Sup. Ct. 785, 42 L. Ed. 113, the Supreme Court said, “Under the circumstances, we think that this contract of insurance is to be interpreted according to the English law.” But by “English law” the court did not mean an act of Parliament, but the law of England as established by the decisions of its courts, and “by the usages prevailing at Lloyd’s.” “Referring, then,” say the court, “to the English law upon the question as to the meaning of this language, the English courts many years ago decided it, and that has been adhered to ever since.” And it was these decisions that constituted the law of England to which the court gave effect in that case.
As said by Justice Brewer in Richardson v. Warner, supra, decisions in cases like the one at bar establish a rule of property, and are binding on the federal courts. They affect rights and interests in real estate. Establishing, as they do, a rule of property, the doctrine as to the rule of decision in cases involving general questions of commercial law has no application.
The Kansas doctrine is held in Texas. Harrison Machine Works v. Reigor, 64 Tex. 89. In Moline Plow Co. v. Webb, 141 U. S. 616, 623, 12 Sup. Ct. 100, 35 L. Ed. 879, the Supreme Court of the United States made the following reference to the case last cited:
“A leading case in tbe Supreme Court of Texas on this subject is Harrison Machine Works v. Reigor, 64 Tex. 89. This was an action upon promissory notes payable at different dates, each containing an agreement to the effect that ‘a failure to pay that note when due should mature both notes.’ The note first falling due was not paid at maturity, and more than four years elapsed without suit. The question was presented whether limitation on the note last falling due commenced upon default in the payment of the one first maturing. It was held that it did, the court saying: ‘That the effect of the agreement was to authorize suit or give a right of action upon the last note at the same time that it could be commenced upon the first, cannot be doubted. By the express terms of our statute of limitation, it commences to run from the time when the cause of action accrues. It is immaterial from what cause a note becomes due, so far as the right of the holder to enforce it by suit is concerned. * * * If the holder of a note may, at his option, treat the claim as due at a later date than the maker has agreed that it shall mature, and thus prescribe a different date at which it shall be barred, the evidence for its enforcement may be preserved, whilst that for its resistance may be destroyed, and thus the purpose of the statute be wholly defeated.’ After referring to Hemp v. Garland, 4 Q. B. 519, as sustaining that view, but recognizing the fact that that case had been somewhat criticised on the ground that the facts brought it within the principle that no one is bound to take advantage of a forfeiture (Wood on Limitations, 296), the court proceeds: ‘Admitting this to be a correct view, it cannot affect the present case. Here *231no option was left to the creditor. He was forced to treat the debt as due. It is true, he was not obliged to bring suit upon it upon default in payment of the first note. Neither is any creditor compelled to sue upon a claim so soon as it becomes due. But the statute was put in motion without consulting his wishes, by the very terms of the contract, which neither party had any right to change without the consent of the other. When suit is left to the option of the creditor, and he fails to bring his action for the whole debt upon the nonpayment of one installment, the debtor may possibly be authorized to construe this as an exercise of option in favor of postponing the maturity of the unpaid installments. He may be justified in supposing that, if he had incurred a forfeiture, the creditor had elected not to take any advantage of it, and may be chargeable with knowledge that limitation would be computed accordingly. But if the creditor cannot postpone the maturity of the debt, and hence cannot waive the forfeiture, if such it can be termed, the debtor cannot, of course, be charged with notice that hé has done so.’ ”
After making the foregoing quotations from the opinion of the Supreme Court of Texas, the Supreme Court say:
“Accepting this decision as giving the rule to be observed in the interpretation of the local statute, it remains to inquire whether, upon the mere default in the payment of interest, or upon such default continuing for ninety days, limitation began to run, without regard to any option upon the part of the payee or the holder of the notes. In determining whether the payee or the holder of the notes was compelled to treat them as due and collectible upon such default, we are to look at the deed of trust, and treat it and the notes as one instrument, or as contemporaneous agreements relating to the same subject-matter. The deed refers to the notes, and is itself referred to in each note, and may be examined to ascertain the real intention of the parties. Looking alone at the first clause of the notes, there would be some ground, under the case last cited, for holding with respect to each note that it would become due and collectible, without regard to the wishes of the holder, immediately upon default in paying interest. But this could not have been intended, because the deed of trust, referring to the several notes, provides for the whole debt, as well as the interest, becoming due and payable, if at any time the interest shall remain unpaid, after maturity, for as much as ninety days. We think, however, that the words in the deed of trust, ‘at the option of said third party,’ the payee or holder of the notes, refer not only to a foreclosure, but equally to the clauses in the notes and in the deed of trust relating to the maturity of the principal in the ease of a default in the payment of interest. In other words, the principal, in either of the contingencies named, might become due and payable in advance of the time specifically named in the respective notes, at the option of the payee or holder. If this be not the correct interpretation, it would follow that the payee or holder of the notes, notwithstanding the words ‘at the option of said third party,’ which words are admitted to have given an option, at least, as to the foreclosure of the deed of trust, would be compelled to bring his suit for foreclosure within four years from default in the payment of interest at maturity, or at least within four years after the expiration of ninety days from such default.”
While the Supreme Court, in the case from which we have quoted so extensively, held the statutes of limitations did not run in that case, the decision was rested upon the ground that the default in the payment of the interest did not render the whole debt due and payable, because by the terms of the deed such default was to have that effect only “at the option of said third party.” In the case at bar there is no such provision.
The parties to the notes and mortgage expressly agreed that their legal rights should be determined “in every particular” by the laws of Kansas, where the contract was made and by its terms to be per*232formed, and where the parties to it resided. There is no rule of commercial or other law that can nullify this contract. It has the same binding obligation as any other valid contract. It is conceded, if this suit had been brought in a court of the state, the defendant could have successfully pleaded the statute of limitations. This would be his right by virtue of the terms of his contract and by the law of the state, and this right and that law cannot be nullified by the transfer of the notes to a nonresident of the state, who can sue in the federal court. The law of Kansas on this subject is settled by a long and uniform train of decisions of its Supreme Court as effectually as if it was written in the statutes of the state; and the law thus settled is as binding and obligatory on the federal court as a statute would be, and that a statute would be binding is conceded. It is a new and startling doctrine that the federal courts will enforce a supposed rule of commercial law or construction against the express contract of the parties and the settled law of the state in which the contract was made and to be performed and the parties resided.