Opinion
No. 6,398.
Submitted February 16, 1929.
Decided March 20, 1929.
Promissory Notes Secured by Mortgage — Non-negotiability — Negotiable Instrument Law Applicable Only to Negotiable Instruments — General Indorser — Nonliability as to Non-negotiable Instruments — Deficiency Judgment. Promissory Notes — Note Executed Prior to Amendment of Section 8412, Revised Codes 1921, Non-negotiable Where Secured by Mortgage, Though Negotiable on Face. 1. A promissory note, negotiable on its face, executed prior to the amendment of section 8412, Revised Codes of 1921, was non-negotiable when secured by a mortgage on real property, and the assignee of the mortgage with the note indorsed in blank, taking it with full knowledge that it was a mortgage note, took it as a non-negotiable instrument. Same — General Indorser — Liability — Statutory Provisions Applicable Only to Negotiable Instruments. 2. The provisions of section 8473, Revised Codes, prescribing the extent of the liability of a general indorser, relate only to negotiable instruments; hence the blank indorsement of the above-mentioned non-negotiable note did not carry with it a legal liability on the part of the indorser to pay the amount of the note, in the absence of a special agreement to pay, and the holding of the court in an action to foreclose that plaintiffs were not entitled to a deficiency judgment as against him was correct.
Appeal from District Court, Judith Basin County; John C. Huntoon, Judge.
Mr. E.K. Cheadle and Mr. G.W. Robison, for Appellants, submitted a brief; Mr. Cheadle argued the cause orally.
Mr. Wm. M. Blackford, for Respondents, submitted a brief and argued the cause orally.
On April 22, 1917, Lloyd Rowles executed and delivered to Wm. H. Brown, hereafter called defendant, his three certain promissory notes, and to secure their payment executed and delivered a certain mortgage covering lands in Fergus county, now in Judith Basin county. Thereafter defendant indorsed the notes in blank by writing his name on the back thereof, and executed a proper assignment of the mortgage to plaintiffs; notes and assignment of mortgage were delivered to plaintiffs. Rowles defaulted in making the payments as they became due, and this action was brought to enforce payment of the notes and the foreclosure of the mortgage.
The complaint is in the usual form, and alleges the execution and delivery of the notes and mortgage, the assignment thereof to plaintiffs, and the default in payments. Judgment is demanded for the unpaid principal, with interest, costs, and attorney fees; that the premises be sold to satisfy the same, and for deficiency judgment in the event the proceeds derived from the sale are not sufficient to satisfy the judgment. Service was had by publication. The default of Rowles was entered for failure to appear. Defendant appeared and answered, admitting the execution and delivery of the notes and mortgage and the assignment thereof to plaintiffs, but alleging that the assignment was without consideration. Other allegations of the answer are not material to a consideration of the questions presented. Issue was joined by reply; trial had before the court sitting without a jury.
As conclusions of law the court declared that plaintiffs were entitled to judgment for the unpaid principal, with interest, costs, and attorney fees, and for foreclosure of the mortgage; that the notes were non-negotiable and plaintiffs were not entitled to a deficiency judgment against defendant. Judgment was accordingly entered. Plaintiffs appeal from that part of the judgment absolving defendant from a deficiency judgment.
The determinative question is: Are the notes negotiable? They [1] make no reference to the mortgage, and on their face are negotiable; however, counsel concede that plaintiffs "knew of the contents of the mortgage by reason of its assignment to them."
The decisions of this court in the cases of Cornish v. Woolverton, 32 Mont. 456, 108 Am. St. Rep. 598, 81 P. 4, and Buhler v. Loftus, 53 Mont. 546, 165 P. 601, are decisive of the question here presented. In the Loftus Case it was held that a note, negotiable on its face, was non-negotiable when secured by a mortgage on real property, and that a transferee, taking it with full knowledge that it was a mortgage note, took it as a non-negotiable instrument. Since that decision, section 8412, Revised Codes of 1921, relating to negotiable instruments, has been amended (Chap. 143, Laws of 1923), by adding subdivision 5, which reads: "An instrument otherwise negotiable in character is not affected by the fact that it was at the time of the execution or subsequently secured by mortgage on real or personal property." The amendment, however, does not apply to the notes in suit ( Bullard v. Smith, 28 Mont. 387, 72 P. 761; Cornish v. Woolverton, supra), so that their character must be determined by the provisions of the statute as it stood prior to amendment. The amendment was evidently made for the purpose of obviating the result of the decisions in the above cases. Under the authorities cited, the notes are non-negotiable.
By transfer of the notes by indorsement in blank, defendant [2] did not become an "indorser" of the notes with the attendant liabilities, in the sense in which that term is used in section 8473, Revised Codes of 1921. The provisions of that section relate only to negotiable instruments. ( Newer v. First National Bank, 74 Mont. 549, 241 P. 613; United States National Bank v. Shupak, 54 Mont. 542, 172 P. 324.) Such transfer did not carry with it a legal liability on the part of the defendant to pay the amount of the notes, in the absence of a special agreement to that effect. ( Newer v. First National Bank, supra; Kendall v. Parker, 103 Cal. 319, 42 Am. St. Rep. 117, 37 P. 401.)
The conclusion we have reached makes it unnecessary to decide other questions presented by plaintiffs.
For the foregoing reasons, the judgment is affirmed.
MR. CHIEF JUSTICE CALLAWAY and ASSOCIATE JUSTICES MATTHEWS, GALEN and ANGSTMAN concur.
Rehearing denied April 13, 1929.