Bailey v. Inland Empire Co.

Mr. Justice Burnett delivered the opinion of the court. 1. It appeared in testimony that Phillips, the payee of the note in suit, borrowed $4,000 from one Austin, gave a promissory note therefor on August 11,-1911, and for collateral security indorsed the note here in question in blank and delivered it to Austin. The latter in turn for value indorsed to the plaintiff the $4,000 note, and delivered and transferred to him both it and the note involved in this action as accompanying collateral all prior to the maturity of the note in suit. There was also introduced in evidence an instrument seemingly executed in British Columbia, signed by Phillips, reciting the execution of a mortgage by the defendant here to secure $10,000 and conveying it to Austin with the debt secured thereby, and the estate of Phillips in the land therein described, nothing, however, being said about the transfer of the $10,000 note. A like instrument from Austin to the plaintiff also appeared in evidence. A mortgage being merely an incident to the note which it secures, the assignment of the former cannot hamper or destroy the negotiability of the latter. It is not necessary, therefore, in this case to further consider the separate transfers of the mortgage. No question is made about the note being negotiable on its face. 2, 3. Without pleading anything about the instrument in suit having been pledged to the plaintiff as collateral, the defendant contends on appeal that the recovery of the plaintiff should have been restricted to the amount of his claim against Phillips and that the Circuit Court was wrong in rendering judgment for the full amount of the note executed by the defendant. The action is brought on the theory that the plaintiff is [313] the holder in dne course for value, and the answer is predicated on the assumption that the plaintiff took the note with notice of defenses against it destroying its negotiability. The pleadings would not have been different in that respect if the plaintiff had bought the note outright paying full face value. There is no evidence whatever in support of the defendant’s allegation on that subject. On the contrary, all the evidence in the case is the other way. The finding of the court on that point is invulnerable. So far as the record discloses, no application was made to amend the answer to conform to the facts, and it was incumbent upon the court to hear and decide the case according to the issues made by the pleadings. The whole case turns-upon the allegation of the answer imputing to the plaintiff notice of infirmities in the note. When the issue on that allegation was determined against the defendant, inevitable as it was, the reminder of its defense became negligible and immaterial under the pleadings as framed. It is said in Section 5885, L. O. L.: “A holder in due course is a holder who has taken the instrument under the following conditions: (1) That it is complete and regular upon its face; (2) that he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (3) that he took it in good faith and for value; (4) that at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.” Having, as the testimony shows, actually loaned to Phillips the $4,000 at the time of transferring the note in question as collateral securing that .debt, plaintiff’s indorser, Austin, in whose shoes the former stands, took the pledged instrument in good faith and for [314] value. That it is complete and regular upon its face is in effect admitted and thoroughly established by the document itself which is in evidence. It is also substantially conceded and confirmed by the finding that the plaintiff became the holder of it before it was overdue, and it is proven by uneontroverted testimony that at the time it was negotiated to him he had no notice of any dishonor of the note or of any infirmity in the instrument or defect in the title of the then owner. Thus are subserved all the statutory conditions'making the plaintiff a holder in due course. It is said in Section 5890, L. O. L.: “A holder in due course holds the instrument free from any defect of title of prior parties and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.” Hence under the pleadings the plaintiff stands as a holder in due course and is entitled according to the findings to recover the full amount of the note. Not having raised the question of collateral and of the amount of the note for which it was pledged, the defendant is not entitled to rely upon that other Section 5860, L. O. L., which reads thus: “Where the holder has a lien on the instrument, arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien. ’ ’ 4, 5. The authorities are numerous that the holder of pledged collateral is liable to his pledgor if by negligence the former suffers the loss thereof or fails to collect it. The distinction between suits in equity and actions at law is still maintained in the jurisprudence of this state. Consequently, it may well be doubted if in an action at law of this kind, as distinguished from [315] a suit in equity, where all the parties in interest are before it, the court can compel the plaintiff to litigate questions between the defendant and his former creditor. The latter, not being a party to this action, would not be bound by any judgment therein. If the argument of the defendant is followed, especially as the pleadings exist, the plaintiff would suffer the abatement of his claim here and afterward would be compelled to account to his pledgor, thus being involved in two contests over subject matter to which he is a stranger. The situation disclosed by the defendant is analogous to that portrayed in Mitchell v. Holman, 30 Or. 280 (47 Pac. 616), where, after judgment on a collateral note, a suit in equity was prosecuted by its makers to compel the judgment creditor to allow as a setoff against his judgment a counterclaim in their favor against the insolvent indorser of the collateral note after the plaintiff’s original claim was satisfied by the proceeds of the collection. In that case all parties connected with the note in pledge were brought before the court and their rights adjusted according to the equities of the case. That question, however, is not presented by the pleadings here and is coram non judice. The judgment is affirmed. Affirmed. Mr. Chief Justice Moore, Mr. Justice Bean and Mr. Justice Harris concur.