McDaniel v. Bank of Bethlehem

Wade, C. J. (After stating the foregoing facts.) Counsel for the plaintiff in'error in his brief bled in this court “expressly abandons any and all allegations of error upon the disallowance of the amendment offered to the original answer on the 17th of November, 1917, the date on which the motion for new trial was heard.” . It is insisted by the plaintiff in error that the original piea, with the amendment allowed, distinctly charged that the plaintiff was not a bona bde transferee for value and without notice, but that even in the event this court should hold/otherwise, the verdict directed was not authorized, and should be set aside under the general grounds of the motion for a new trial, inasmuch as the court had.before it (besides the agreement as to the value of cotton) only the original petition, including a copy of the note,' which, showed'that, the contract sued upon was primarily for the purchase of land, with an added provision or condition that in the event of failure to pay in accordance with the original .contract, the amount therein stipulated should become due as rent for .the year 1916; and even,if the statement of the presiding judge be taken into consideration (that although this amount could not be recovered as purchase-money, it could be recovered under the-rent stipulation), no legal evidence was introduced to show the value of the land for rent; and any amount fixed as such value by agreement and in advance of breach of the contract of purchase must be construed as a penalty and not1 enforceable; and the stipulated damages- for the breach of the contract for the sale of the land, being 'in the nature of a penalty, were not enforceable, and- the verdict was therefore contrary to law. .. 1. It is clear that the second paragraph of the amendment to the answer does not unqualifiedly allege that the Bank of Bethlehem was not the transferee of the note, for value, before due and without notice; and hence there was nothing in that paragraph to put the plaintiff on proof that the plaintiff was in fact a bona fide holder of the note without notice. The paragraph must be considered as a whole., and the allegation that the bank was not a bona fide holder of the note without notice, coupled with the further allegation, “but” that said paper was indorsed to the — 229 — bank as security for an indebtedness due it by the indorsers, and the bank had ample other security for said debt without enforcing the note sued upon, amounts merely to an allegation, that the bank was not a bona fide transferee without notice, for the reason that, or because, the paper was held by it as collateral security only, etc. It is unnecessary to consider at length the allegation of this paragraph that the bank held this note as collateral and had other security sufficient to make safe the debt secured thereby. One.holding a negotiable instrument transferred as collateral security for a debt is as fully protected as if the holder had purchased the note outright. “The holder of a note as collateral security for a debt stands upon the same footing as the purchaser.” Civil Code of 1910, § 4289. It is true that the holder of a paper obtained as collateral security may recover only the amount of the debt secured, where the maker has a valid defense against the original payee, and in such case the transferee is entitled to stand upon a better footing than the original payee only pro tanto; but in the absence of proof to the contrary it will be presumed that the debt due the transferee and secured by the collateral paper he holds is • equal to or exceeds the amount of the security. See Hancock v. Empire Cotton Oil Co., 17 Ga. App. 170, 194, 195 (86 S. E. 434), and cases there cited. See also Morrison v. Citizens and Southern Bank, 19 Ga. App. 434 (4) (91 S. E. 509); Linderman v. Atkins, 143 Ga. 366 (3) (85 S. E. 101). In a suit by the holder of such a note “the presumption is that the secured debt is sufficient to consume the collateral, and the onus of pleading and proving a less amount and the maker’s equity against the' original payee is on the defendant.” Clydesdale Bank v. Blackshear Mfg. Co., 18 Ga. App. 515 (2) (89 S. E. 1051), and citations. No intimation is made in the second paragraph of the amendment to the plea, allowed subject to objection, or elsewhere in the original plea or the amended plea, that the debt due the plaintiff by E. S. and E. Y. Harris, and secured by the note sued upon, as well as by other collateral, was less in amount than the collateral note sought to be collected, and the fact that other collateral, which in the opinion of the defendant was sufficient to, protect the debt in part secured by this note, was held by the plaintiff, could not of course affect the right of the plaintiff to enforce the collection of this particular collateral security. — 230 — 3. The third paragraph of the amendment to the answer sufficiently alleged that the plaintiff acquired the note sued upon with notice that it had been given as a part of the purchase-price of a tract of land previously deeded by the payees to an outside person, and that therefore the payees could not make and execute a good deed of conveyance to the defendant, even if this and the remaining purchase-money notes should be paid. The further statements in paragraph 4 of the said amendment, to the effect that the party holding the outstanding title to the land had levied upon and sold the same, and that of this the plaintiff had knowledge, “in so far as same had transpired” at the time it acquired the note, were not essential to complete the averments in the paragraph 3 of the plea, and did not modify the distinct statement therein that “at the time said plaintiff acquired said note sued upon, said plaintiff well knew” that the tract of land had already been deeded to the Farmers Bank of Monroe as security, etc. It must be inferred, from reading the amendment to the plea as a whole, and in the absence of any special demurrer, that a general allegation of notice on the part of the Bank of Bethlehem at the time it acquired the note, to the éffect that the land for which it was given in part payment had already been deeded to an outside person, and therefore the consideration had to that extent failed, was sufficiently set out. It is apparent, therefore, that if the sole consideration named in the note had been the land described in the bond for titles attached to the plea and which is referred to in the note, it would have been error to strike the plea as amended. The note, however, recited another and different consideration, since it provided distinctly that in the event any one of the series should not be paid at maturity, then all the other notes of the series should become due and payable, time being of the essence of the contract; “and should this note not be paid at maturity, I agree that same shall become rent for the lands for the year 1916.” The learned trial judge (as appears from the' fourth ground of the fnotion for a new trial, which is set forth in the statement of facts), in striking the amended plea and directing a verdict against the defendant, held that the plea as amended set up no defense, for the reason that, even if the title to the land was not in E. S. and E. Y. Harris at the time the note sued upon was transferred to the Bank of Bethlehem, and all this was known by the Bank of Beth — 231 — lehem at the time of the transfer, “inasmuch as said McDaniel was in possession of the .land and the note stipulated that same should be paid as rent in the event all payments were not paid, . . plaintiff was entitled to have judgment for the amount of said note as rent.” It is insisted in this ground of the motion that the question as to the value of the rent should have been submitted to the jury, and that the plaintiff was only entitled to recover the actual value of the rent of the land, and the damages for the breach of the contract to pay for the land were accurately computable, and the stipulation by which an amount in excess of such legal damages should be paid or retained was not enforceable. The defendant, however, interposed no plea alleging that 5,000 pounds of middling lint cotton was such an exorbitant yearly rental for the lands described in the bond for titles and referred to in the note as would amount to a penalty for the breach of the contract of purchase. This court can not determine, as a matter of law, nor could the trial court reach the conclusion, from anything appearing in the record, that the amount stipulated in the note to be paid as rent for the year 1916, -in the event that any of the series of notes given for the'purchase-price of the land was not paid at maturity, was greater than the actual value of the rent of that land for the year 1916, or was so far in excess of actual legal damages, capable of accurate computation, for the breach of the contract to pay for the land, as to amount to .a penalty for such breach. There is nothing in Lytle v. Scottish American Mortgage Co., 122 Ga. 458 (50 S. E. 402), and the various cases therein referred to, in conflict with this holding. As was said in that case (p. 466): “Equity will not force parties to litigate, nor will it prevent them from entering into agreements to avoid litigation. Civil Code [of 1895], § 3935 [Civil Code of 1910, § 4532], There is no reason, therefore, why they may not agree in advance upon damages to be paid in the event of a breach, or upon an amount to be paid for rent on rescission of a contract of sale. . . Whether such an agreement can be enforced will depend, however, among other things, on the question as to whether the rent was liquidated damagés, or so unreasonable as to come within the prohibition against penalties and forfeitures.” . It would seem that a rental of 10 bales of cotton for one year, when the total agreed purchase-price amounted only to — 232 — 46 bales, payable in the course of 5 years, would be unreasonable' -and excessive, but, for aught that appears in the, record, this may not be .the case, and, to the contrary, the value of the property in question may have increased so greatly, since the making of the contract, or may have actually been so much greater at the time the contract was made than the purchase-price therein agreed upon, that 10-bales, would in fact be only a moderate and reasonable rent for 1916, especially as the price of cotton may have greatly changed during the period, and it appears from the recitals in the fourth ground of the motion for a new trial that the defendant was actually in possession of the property during that period.' According to the plea as amended, the bank clearly had notice that the land had been sold to another person before it acquired this one of the purchase-money notes given therefor by the defendant, but, so far as is disclosed by any statement in the plea, the bank then also knew that the defendant was in possession of the land in question, and that in the event he defaulted in the payment of this note, he would be liable, under its terms, for its full amount, as rent for the year 1916; and believing that this was a fair and reasonable rent for the property, he nevertheless accepted the same. The plaintiff in error himself evidently recognized the necessity for showing that the consideration of the note (Regarded as a rental contract) had failed in part at least, inasmuch as the amount thereof was in excess of a reasonable rental of the property, if he expected to defeat its recovery in the hands of the bank, notwithstanding the bank had received the note with notice of the previous transfer of the property to an outside person, by attempting, during the pendency of the motion for. a new trial, to file an amendment to his plea, in which amendment he alleged distinctly that a reasonable rental for the premises for one year would amount to only 1,500 pounds of cotton, instead of 5,000 pounds. The trial judge was, of course, confined to what whs in fact pleaded before the rendition of the judgment and at the time he struck the pleas as setting up no sufficient defense to the suit. Whether or not the rent stipulated for in the note was in fact excessive or was reasonable, and whether or not the defendant by a timely plea could have set up a valid defense against the demand of the plaintiff, cquld not be considered by the trial judge, nor can it be considered by this court. We of course recognize the principles re — 233 — ferred to by learned counsel for the plaintiff in error, which are so clearly elucidated in Lytle v. Scottish American Co., supra, and realize that while a valid written contract may not ordinarily be contradicted or varied by parol,,it.is competent to show by such evidence that the writing is in fact “but a cover for usury, penalty, or forfeiture;” and that what was denominated rent in the note sued upon may in fact have been a part of the purchase-money or a device to obtain a penalty, and that the damages for the breach of contracts for the sale of land are capable of exact computation, “and a stipulation by which an amount in excess of such legal damages shall be paid or retained is not enforceable.” Nevertheless, in the absence of any plea even', suggesting that what is denominated “rent” in the note sued upon was an unreasonable amount as rent for the premises in question, or was so denominated merely as a device to obtain an unlawful penalty in excess of proper and legal damages for the breach of the contract, the trial court could not properly inject such an issue into the ease; nor can this court read into the record an issue of that character merely on surmise or supposition, and without any sufficient basis therefor in the record before us. We must, therefore, hold that the, trial judge did not err in striking, on oral objection, the plea as amended, and in thereafter directing a verdict, since the plea set up no defense whatever to the collection of the amount claimed by the plaintiff, which, notwithstanding the previous sale of the land by the original payees of the note, wa's, so far as the record discloses, a fair and reasonable- price for its rental during .the year 1916, and was so recoverable. Judgment affirmed. Jenlcins and Luke, JJ., concur.