Rector v. Strauss

HART, J., (after stating the facts). (1) The question raised by this appeal is whether the instruments sued on are promissory notes. In order to render the making of the instruments negotiable, they must contain a written promise to pay money to another unconditionally, absolutely and at all events. If the sum promised to be paid is only payable out of a special fund which may prove inadequate to meet the demand in full, the instrument is not negotiable. The reason of the rule is that such an instrument does not carry the general personal credit of the maker thereto, which is one of the essentials of negotiability. 3 R. C. L., sec. 70, p. 884; 8 C. J., p. 123; Daniel on Negotiable Instruments (6 ed.) Vol. 1, par. 51, p. 66; Worden v. Dodge, 4 Denio (N. Y.) 159, 47 Am. Dec. 247; Corbett v. The State of Georgia, 24 Ga. 287, and Munger v. Shannon, 61 N. Y. 251. (3) The rule itself is well settled and the only difficulty is in determining whether or not a given case falls within the rule. We think the court properly excluded the testimony of Belding as to what the parties intended the instruments to mean because the language of the instruments themselves makes their meaning plain. We are of the opinion, however, that the court did not construe the instruments according to their plain and natural meaning. The instruments sued on contain the following: “This note is made upon the condition and with the express understanding that it is to be paid out of the first money received by the Central Avenue Real Estate Company, from the sale of lots, which money would belong to me.” The Central Avenue Real Estate Company had been incorporated for the purpose of taking over certain lots and blocks belonging to Belding and Rector and to Laser and selling them again at a profit. The instruments sued on were executed by Rector and Belding to Laser to make up a deficiency between the estimated value of their lots and blocks and those belonging to Laser. These were the circumstances surrounding the parties at the time the instruments were executed. We think the fair and natural meaning of the language quoted is that Laser was only to be paid out of that part of the proceeds arising from the sale of the lots which would fall to Belding and Rector. It will be observed that while the language quoted refers to the instrument as a note, it states that it is made upon the condition and with the express understanding that it is to be paid out of the money arising from the sale of the lots which would belong to Belding and Rector. We think the instruments do not carry the general personal credit of Belding and Rector, but only the credit of their part of the fund arising from the sale of the lots. This construction is borne out by the language of our negotiable instrument act. Acts of 1913, p. 260. Section 1 of the act provides that one of the requirements of a negotiable instrument is that it must contain an unconditional promise or order to pay-a certain sum in money. Section 3 reads as follows : “An unqualified order or promise to pay is unconditional within the meaning of this act, though coupled with: “(1) An indication, of a particular fund out of which reimbursement is to be made, or a particular account to be debited with the amouiit; or “(2) A statement of the transaction which gives rise to the instrument. But an order or promise to pay out of a particular fund is not unconditional.” So here the money is not promised to be paid unconditionally; for it is only payable out of the proceeds of the sale of the lots belonging to Belding and Rector. The last clause of the instrument which provides for its renewal does not change the condition under which the money is to be paid. It provides that if sufficient money is not received from the sale of the lots during the first year to pay the note, then said note is to be renewed upon the payment of the interest due. Where a note by its terms provides for its own renewal on certain conditions, and such conditions arise, so that it becomes renewed, the renewal also renews the stipulations. 8 C. J., p. 442, par. 653. It follows that the court erred in rendering judgment for the plaintiff and for that error the judgment must be reversed. Inasmuch, as the instruments sued on are not promissory notes, there is no necessity for a remand of the case and the complaint in each case will he dismissed here without prejudice to the right of appellee to enforce in the proper forum whatever rights he may have under the contract. It is so ordered.