Lindsay v. Collings

^* Writ of error pending in Supreme Court. This suit was brought in the county court at law of Reeves county, Tex., by appellant, A. Y. Lindsay, a resident of the state of California, against appellee, E. L. Collings, a resident of the state of Texas, and is an action to recover upon a promissory note, executed, delivered, and made payable in California, in the sum of $500, interest and attorney's fees. Appellee admitted the following facts pleaded by appellant: The execution and delivery of the note payable to appellant in California; the execution and delivery to appellant of a certain mortgage on certain real estate in California, described in the petition, given to secure said note, and all of the terms and provisions of said mortgage as pleaded (copying the note there sued on in the body of the mortgage); that the said mortgage was a subsequent and second lien on said property and subject to a certain note for $1,500 signed by appellant and payable to Lula Mae Taylor, and that appellant took said second mortgage lien to secure the payment of the $500 note sued on; that thereafter Lula Mae Taylor brought suit in California against appellant, appellee, and others to foreclose the first mortgage lien on said property; that in said foreclosure suit appellant entered his appearance and filed a crossaction against appellee and others named, for the purpose of foreclosing his said second mortgage lien on said property and paying said $500 note, interest, and attorney's fees; that appellant was cited to appear and answer said suit and cross-action, but made no answer; that the said property was sold under order of the California court in said suit, but for an amount insufficient to pay any part of said $500 note; that no part of said $500 has ever been paid; that at the time of bringing said California suit appellant was a resident of Texas, and no personal judgment was had on him in said suit; that appellant has employed attorneys to bring this suit, and has contracted to pay a fee of $75, which is a reasonable fee. Further answering, appellee denied that the Lula Mae Taylor $1,500 note had not been paid; alleged that the $500 here sued on and the said second mortgage lien were executed and delivered in California and made payable to appellant in California, and that the entire transaction was one and was entered into in said state, and that appellant sued appellee upon said note and trust or mortgage lien in California, and in said suit obtained a decree of foreclosure of said second mortgage lien on said property. Appellee further pleaded section 726 of the Code of Civil Procedure of California, which is in part as follows:

"726. There can be but one action for the recovery of any debt, or the enforcement of any right secured by mortgage upon real or personal property, which action must be in accordance with the provisions of this chapter. In such action the court may, by its judgment, direct the sale of the incumbered property (or so much thereof as may be necessary), and the application of the proceeds of the sale to the payment of the costs of court, and the expenses of the sale, and the amount due plaintiff, including, where the mortgage provides for the payment of attorney's fees, such sum for such fees as the court shall find reasonable, not exceeding the amount named in the mortgage."

Appellee further pleaded the interpretation given said section 726 by the Supreme Court of that state, and introduced in evidence the following opinion in Meyer v. Weber, 133 Cal. 682, 65 P. 1111:

"The Woodbridge Canal Irrigation Company, a corporation, being indebted to the plaintiff in the sum of $3,280, on July 28, 1894, executed to the plaintiff its promissory note for that amount, and, to secure the same, at the same time executed its mortgage upon a tract of land in San Joaquin county, and also at the same time, as further security, indorsed and assigned to the plaintiff the note and mortgage in suit. The note reads as follows:

"``$1,963.66. Woodbridge, Cal., May 28, 1894.

"``Ten years after date we promise to pay to the Woodbridge Canal Irrigation Company, or order, the sum of nineteen hundred sixty-three and 66/100 dollars, payable only in gold coin of the government of the United States, for value received, with interest thereon, in like gold coin, at the rate of 6 per cent. per annum from date until paid. Interest payable annually, on the 1st day of September of each year, and in default of payment at said times the same to be then added to the principal and form a part thereof, bearing interest at the same rate.

"``This note is secured by a mortgage of even date herewith. Helen Weber.

"``C. M. Weber.

"``Julia H. Weber.'"

"Although the note is dated May 28th, it was not delivered until June 15th, at which time the mortgage to secure the same, and referred to in the note, was executed and delivered to the said corporation, the Woodbridge Canal Irrigation Company. The plaintiff subsequently brought an action to foreclose the mortgage executed to her by the Woodbridge Canal Irrigation Company, and such proceedings were therein had that a decree of foreclosure and sale was rendered, and thereupon the property mortgaged sold and applied on the judgment, leaving a deficiency of $2,639.49. Thereupon plaintiff brought the present action to foreclose the mortgage assigned to her.

"The defense is that the consideration for the note and mortgage was an agreement in writing entered into between the makers and the payee, the Woodbridge Canal Irrigation Company, that said company should construct a ditch from the main canal, or branch thereof, to the line of the land of the Webers, being the same described in the mortgage, of sufficient size and election to allow the irrigation of said land, and flow the water to said land for the purposes of irrigation, and that said company never at any time constructed a ditch or branch canal to the land for which the water was to have been furnished, and that no water has at any time been brought to the said land; that said Woodbridge Canal Irrigation Company became insolvent on or about October 5, 1895, and was thereafter deprived of the possession of all of its works, canals, and property, by reason whereof the said company was, and ever since has been, rendered incapable of performing its contract with said defendants Weber, and that in consequence the consideration of said note and mortgage has totally failed.

"The court finds the facts as set up in the answer of defendants Weber, that the note and mortgage in suit were made and delivered to said company in pursuance of the terms and conditions of said agreement; that the company never at any time constructed a ditch or branch of any size to the land in question, and no water has at any time since the making of said agreement been brought to said land by said company; and that the consideration of said note and mortgage has failed. Upon the findings of fact the court entered judgment in favor of said defendants.

"The appeal is on the judgment roll, and the only question presented is whether the instrument in suit is a negotiable promissory note, within the meaning of the Civil Code. The appellant contends that it is, and that it must be considered separate from and independent of the mortgage given to secure the same; that the clause ``this note is secured by mortgage of even date herewith' may be disregarded, as forming no part of the obligation to pay as specified in the note. But the mortgage was delivered at the same time as the note, relates to the same subject-matter, and they form, substantially, one transaction. They must therefore be taken and considered together. Civ. Code, § 1624. The plaintiff recognizes this to be so from the very fact of bringing the action. By the note on its face it had ten years to run, and the only consequence of the failure to pay the interest annually was that it should be ``added to the principal, and form a part thereof, bearing interest at the same rate.' But by the mortgage given to secure the note it is provided, in case default be made in the payment of ``any installment of interest, as provided in said note, then the whole sum of principal and interest shall be due, at the option of the said party of the second part, its successors or assigns; and suit may be immediately brought, although the time for payment of said principal sum may not have expired;' and it is provided that costs and charges may be included in the decree of foreclosure, ``including reasonable counsel fees.' Counting upon the terms of the mortgage, and not of the note, as distinguished therefrom, the plaintiff alleges a failure to pay the interest, and an election to consider the whole amount due, and further alleges the employment of an attorney to secure its foreclosure, and asks for a reasonable sum to be fixed as his fee. In Phelps v. ``Mayers, 126 Cal. 549 [58 P. 1048], the defense was that the suit was prematurely brought, on the ground that the note in suit did not provide that the principal debt should be due on default in payment of interest, and that hence a foreclosure for both principal and interest was unwarranted. That contention is answered as follows by this court: ``The note and mortgage, however, must be construed together. Interest on the note is payable semiannually, and the mortgage is clear that upon default in the payment of the interest equally with default in the payment of the principal the mortgagee may cause the premises to be sold, and retain from the proceeds "the said principal and interest." There is scarcely room for interpretation in these provisions.' See, also, Nagle v. Macy, 9 Cal. 426; Hyde v. Mangan, 88 Cal. 320 [26 P. 180]. An independent action on a promissory note secured by mortgage is prohibited in this state. ``There can be but one action for the recovery of any debt or the enforcement of any right secured by mortgage upon real estate or personal property, which action must be in accordance with the provisions of this chapter' (Code Civ. Proc. § 726); that is, by a suit to foreclose, and a sale of the mortgaged premises, and ascertainment of the deficiency, if there be any (Toby v. Oregon Pacific R. R. Co., 98 Cal. 494 [33 P. 550]; Hibernia Savings and Loan Society v. Thornton, 123 Cal. 62 [55 P. 702]). Whatever the form of the debt, the mortgagor can be legally compelled to pay no part of it until the decree is entered for the sale of the premises mortgaged, and the liability which shall then accrue to him is a liability to pay only a deficiency which shall appear on the sheriff's return. The liability is therefore contingent, and dependent upon the fact whether upon the sale of the mortgaged premises there shall be a deficiency. The plaintiff in this case, in bringing the suit, recognized the fact that the mortgage was inseparably connected with the note. As already stated, according to the terms of the note, independent of the mortgage, the action would have been prematurely brought, and at the time it was brought it could only be sustained by reference to the clause in the mortgage giving an option to the owner, in case of default in the payment of interest at the time specified, to consider the whole debt due. Being inseparably connected with the mortgage, and affected by the conditions contained therein, the note is not negotiable, within the law merchant or Civil Code. Kent, under the head of ``The Essential Qualities of Negotiable Paper,' says that, to constitute a negotiable note or bill, ``it is essential that it carry with it a personal credit given to the drawer or indorser, and that it be not confined to credit upon any future or contingent event.' 3 Kent's Commentaries. ``A negotiable instrument must be made payable in money only, and without any condition not certain of fulfillment.' Civ. Code, § 3088. In Adams v. Seaman,82 Cal. 636 [23 P. 53, 7 L.R.A. 224], in commenting upon these provisions of the Civil Code, it is said, ``An instrument is not negotiable if it have any condition not certain of fulfillment,' and it was held that a provision for the payment of an attorney's fee in case of foreclosure was a contingency rendering the note nonnegotiable.

"The assignment and transfer of the note and mortgage in question, therefore, was without prejudice to any set-off or other defense existing in favor of the defendants Weber, the same as though there had been no assignment, and the action had been brought by the company to whom they were given. Civ. Code, § 1459; Code Civ. Proc. § 398. As the findings of the court show an utter failure of consideration as between the original parties, judgment properly followed in favor of the defendants.

"Judgment affirmed."

In addition to the above, we make following quotation from the case of Toby v. Oregon Pacific R. R. Co., 98 Cal. 490, 33 P. 550, a California Supreme Court opinion, construing said section 726 and introduced as evidence on the trial:

"Under that section there can be but one action for the recovery of any debt, etc., which must be in accordance with the provisions of that chapter. It further provides that a personal judgment may be entered for a balance remaining due, if the proceeds of the incumbered property shall be insufficient, etc. To confine a recovery in such classes to one action, to make the mortgaged property the primary fund out of which satisfaction is to be had, and to give the plaintiff a personal judgment for such balance as may remain due after the exhaustion of the mortgaged property, are the three essential things provided for."

The case was tried without a jury. Judgment was rendered for appellee. The trial court made and filed findings of fact and conclusions of law. The facts found by the court are substantially the facts pleaded; there being no controversy as to the facts. Appellant excepted to the trial court's conclusions of law, filed a motion for a new trial, and, same being overruled, gave notice of appeal. Appellant presents four assignments of error, all going to the question of the judgment that should have been entered.

Personal contracts are governed by the laws of the place where made, unless a different place is fixed by the contract for its performance. Jones v. National Cotton Oil Co., 31 Tex. Civ. App. 420, 72 S.W. 248; Cantu v. Bennett, 39 Tex. 303. In Shreck v. Shreck, 32 Tex. 588 (5 Am.Rep. 251) it is said:

"It is certainly a general principle that in judicial actions upon contracts the law of the place where the contract was made governs in determining its construction, obligation, and enforcement, its validity or invalidity."

It is impossible to consider a contract separately from the remedy given by the law of its enforcement, because it is this that supplies it with legal vitality. The law is the essential factor in every contract, and is presumed to be considered by the parties in their deliberations. Among the elements of a contract nothing is more important than its means of enforcement. It is a branch of its vital existence — the thing that gives it life. Without it the contract ceases to be. In maters of contract the ideas of right and remedy are inseparable. Cochran v. Ward,5 Ind. App. 89, 29 N.E. 795, 31 N.E. 581, 51 Am. St. Rep. 229. The statute invoked provides an absolute defense in the state where the contract was made; therefore it must be so held in the state where the suit was brought.

It seems to us and from what has been said that, under the section of the California Code above quoted, and the interpretation of the section by the Supreme Court of that state, had this suit been filed in California, the suit filed by appellant seeking and obtaining an order foreclosing the second mortgage given to secure the note sued on here, the note and mortgage being one and the same transaction, would be a perfect defense to this suit. True, appellant in that suit, appellee at that time being a resident of Texas, could not have a personal judgment against appellee for any unpaid deficiency remaining. But appellant had before him his remedies at the time of filing his suit in California. He could there foreclose his mortgage and purchase appellee's right of redemption, or he could sue in Texas and recover a personal judgment against appellee. He elected to pursue the former. To give the appellant a second suit would be to give him a right he did not have in California, the forum of the transaction. Appellant's right to sue was limited by the law of the place where made to one action. By his suit there he exhausted that right. This state evidently could not widen his right, or give him one that does not go with his contract. This state could do no more by comity than to furnish him a forum and procedure in which to exercise and enforce a right given him by reason of his contract, and that right is construed and limited by the law of the place of its making.

We are of the opinion that the trial court was not in error in entering judgment for appellee.

The case is affirmed.