Summary
In First Nat. Bank v. Hull, 189 Neb. 581, 204 N.W.2d 90 (1973), this court, in concluding that the change made on the security agreement in question therein was authorized by the debtor, nonetheless observed that, in any event, to require the discharge of a party to a written instrument on the ground of alteration, it must appear that the alteration was material as well as fraudulent.
Summary of this case from Federal Dep. Ins. Corp. v. SwansonOpinion
No. 38224.
Filed February 2, 1973.
1. Replevin: Pleadings. The right to amend is as liberally accorded in replevin actions as in other causes. 2. Contracts: Evidence: Trial. Parol evidence is inadmissible to vary a written agreement complete on its face. 3. Contracts: Alteration of Instruments. The filling of blanks in a written instrument is not, strictly speaking, an alteration of the instrument. Where a blank is filled in after the execution and delivery of a written instrument, it is a question of authority to do so. 4. ___: ___. The right to fill blanks in written instruments after execution and delivery is based upon an assumption of consent, in the absence of specific instructions, and the leaving of such blanks is considered to imply authority to fill them, and creates an agency in the receiver to do so in the way contemplated by the maker. 5. ___: ___. To require the discharge of a party to a written instrument on the ground of alteration, it must appear that the alteration was both material and fraudulent. 6. ___: ___. Where an instrument has been executed in duplicate, the unauthorized alteration of one of the copies does not ordinarily affect the validity, operation, or effect of the other copy.
Appeal from the district court for Red Willow County: JACK H. HENDRIX, Judge. Affirmed as modified and remanded with directions.
M. J. Bruckner of Marti, O'Gara, Dalton Bruckner and Sara Jane Cunningham, for appellants.
Russell, Colfer, Lyons, Wood Carroll and Cline, Williams, Wright, Johnson Oldfather, for appellee.
Heard before SPENCER, BOSLAUGH, SMITH, McCOWN, NEWTON, and CLINTON, JJ.
This is a replevin action based on two security agreements. Judgment was entered for plaintiff. Defendant's assignments of error are: (1) That plaintiff was erroneously permitted to amend its petition by substituting a duplicate copy of the security agreement; (2) that parol evidence of an agreement for further credit was wrongfully excluded; and (3) that there was a material alteration of the security agreement. We affirm the judgment of the district court.
The first security agreement was executed in duplicate and a copy retained by each party. The agreement, as signed by the defendant R. W. Hull, provided: "September 3, 1965 R. W. Hull . . ., a resident of #3 Parkview Addition . . . McCook . . . Red Willow . . . Nebraska . . . (hereinafter called `DEBTOR'), for consideration grants to
Name: FIRST NATIONAL BANK Office Address: McCOOK, NEBRASKA (hereinafter called `SECURED PARTY') a security interest in the following property and any and all additions, accessions and substitutions thereto or therefore (hereinafter called the `COLLATERAL'): All the motor vehicles listed and described on the attached sheet designated Exhibit A, now owned or after acquired.
"Mark if applicable [ ] (a) All of Debtor's inventory including all goods, merchandise, raw materials, goods in process, finished goods and all other tangible personal property now owned or hereafter acquired and held for sale or lease or furnished or to be furnished under contracts of service or used or consumed in Debtor's business (all hereinafter called the `Inventory'), and in contract rights with respect thereto and proceeds of both. Without limitation the term `Inventory' includes All Petroleum products, tires and other motor vehicle supplies, now owned or after acquired.
"Mark if applicable [X] (b) All accounts, notes, drafts, chattel paper, acceptances and other forms of obligations and receivables now or hereafter received by or belonging to Debtor for goods sold by it or for services rendered by it, all guaranties and securities therefor, all right, title and interest of Debtor in the merchandise which gave rise thereto including the right of stoppage in transit, and all rights of Debtor earned or yet to be earned under contracts to sell goods or render services and in the proceeds thereof.
"The security interest granted hereby is to secure payment of the indebtedness evidenced by a certain promissory note xxxxx payable to the Secured Party, or order, xxxx together with renewals thereof and such additional sums as may hereafter be advanced to the Debtor or expended by the Secured Party or its assigns on behalf of the Debtor or his assigns for any purpose whatsoever and evidenced by notes, drafts, open account, or otherwise, with interest thereon at rates to be fixed at the time of advancing or expending such additional sums, provided, however, that the making of any such advances or expenditures shall be optional with Secured Party, or its assigns; and this security agreement shall secure the payment of any and all extensions or renewals and successive extensions or renewals of said note or notes, and of any indebtedness at any time owing to Secured Party, or its assigns, and shall further secure the payment of any and all indebtedness owing by Debtor to Secured Party, and for all of which this security agreement shall stand as a continuing security until paid (all of such indebtedness being referred to as the `Obligations'); and the Debtor agrees that the Secured Party, its successors or assigns, may apply any payments made on the Obligations secured hereby, at its option, on any of the notes or other indebtedness secured hereby."
The security agreement was executed on September 3, 1965. On September 2, 1965, defendant R. W. Hull executed a financing statement which provided: "3. This financing Statement covers the following indicated types or described items of property as collateral: All Petroleum products, tires and other motor vehicle supplies, and all Accounts, now owned or after acquired."
A similar statement was executed by defendant on September 27, 1968, covering: "All Supplies, equipment, fixtures, machinery, tools, Bulk Storage Tanks and Loading dock and pumps."
Sometime after the execution of the first security agreement the plaintiff inserted an "x" in the box preceding the provision for inclusion of defendant's inventory and also inserted the following in the paragraph specifying the indebtedness covered: "Note for $12,000.00 dated August 12, 1965, and a note for $64,000 dated September 3, 1965, both payable according to the tenor thereof."
Plaintiff was permitted to amend its petition by substituting the defendant's unchanged copy of the security agreement for the bank's copy which had been changed as noted. Defendants insist this cannot be done and cite State Farm Mutual Auto. Ins. Co. v. Drawbaugh, 159 Neb. 149, 65 N.W.2d 542, which holds that a plaintiff in replevin must prove the title as he pleads it. In that case ownership of the property in question was alleged when, in fact, plaintiff had only a "special ownership" and the petition was not amended in this regard. In the present case, only a special ownership under the security agreement was ever pleaded and the amendment in no way changed this factor. Possession of the replevined property was obtained under the security agreement. "The general rules governing the amendment of pleadings in civil actions generally, * * *, are applicable to amendments in replevin actions." 46 Am. Jur., Replevin, 107, p. 60. Of similar import are Pekin Plow Co. v. Wilson, 66 Neb. 115, 92 N.W. 176; Tackaberry Co. v. Gilmore Ruhl, 57 Neb. 450, 78 N.W. 32. We conclude that defendant's first assignment is without foundation.
Defendant sought to introduce evidence indicating that plaintiff had agreed to extend further credit to him and failed to do so. This evidence was directly contradictory of the provisions of the written security agreement stating that additional advances "shall be optional with Secured Party." In this respect the security agreement was complete on its face and "Parol evidence is inadmissible to vary a written agreement complete on its face." See Jenkins v. Watson-Wilson Transp. System, Inc., 183 Neb. 634, 163 N.W.2d 123.
As a defense to this action, defendant relied primarily on the assertion that there had been a material alteration of the security agreement. The first alteration is in regard to specification of the notes representing the indebtedness secured. Defendant does not deny that this was a correct statement of the indebtedness at the time the agreement was executed. Under such circumstances the element of fraud could not be involved and since it is apparent that indebtedness was owing by defendant to plaintiff, the specification of that indebtedness cannot be considered a material alteration.
The second alteration was by insertion of an "x" in the box prefacing the paragraph showing coverage of the debtor's inventory. At the time of its execution, the security agreement included under this printed paragraph the typewritten statement: "All Petroleum products, tires and other motor vehicle supplies, now owned or after acquired." The fact that this was typed in as a part of this paragraph indicated that the provisions of the paragraph were intended to be applicable. Further evidence of such intention may be found in the provisions of the financing statements covering property generally classified as "inventory." Again the element of fraud is lacking in that the alteration was in line with the apparent intent of the parties as evidenced by these written instruments.
Section 3-115 (1) and (2), Commercial Paper, of the Uniform Commercial Code, provides: "(1) When a paper whose contents at the time of signing show that it is intended to become an instrument is signed while still incomplete in any necessary respect it cannot be enforced until completed, but when it is completed in accordance with authority given it is effective as completed.
"(2) If the completion is unauthorized the rules as to material alteration apply (section 3-407), even though the paper was not delivered by the maker or drawer; but the burden of establishing that any completion is unauthorized is on the party so asserting."
"The filling of blanks in a written instrument is not, strictly speaking, an alteration of the instrument. Where a blank is filled in after the execution and delivery of a written instrument, it is a question of authority to do so. * * *
"The right to fill blanks in written instruments after execution and delivery is based upon an assumption of consent, in the absence of specific instructions, and the leaving of such blanks is considered to imply authority to fill them, and creates an agency in the receiver to do so in the way contemplated by the maker." Mazanec v. Lincoln Bonding Ins. Co., 169 Neb. 629, 100 N.W.2d 881. This principle, however, would not apply to the placing of the "x" in the blank square of a security instrument of the type here involved, where the form is designed to make the paragraph following the square inapplicable if the square is not marked with the "x". We wish to make it clear that in this case the authority to mark the square with the "x" arises from the fact the parties had indicated that that paragraph was to be applicable by causing to he typed therein the material previously referred to.
Section 3-407 (2), Commercial Paper, of the Uniform Commercial Code, provides: "(2) As against any person other than a subsequent holder in due course
"(a) alteration by the holder which is both fraudulent and material discharges any party whose contract is thereby changed unless that party assents or is precluded from asserting the defense:
"(b) no other alteration discharges any party and the instrument may be enforced according to its original tenor, or as to incomplete instruments according to the authority given." Comment 3 b. under this section provides: "There is no discharge where a blank is filled in the honest belief that it is as authorized; * * *."
It will be noted that to void an instrument any alteration must be both material and fraudulent and that an incomplete instrument may be completed in accordance with the intention of the parties. We believe the changes made in the plaintiff's copy of the security agreement. were valid under the criteria provided.
Irrespective of the foregoing, there is another ground on which the plea of alteration must be disallowed. As previously mentioned, plaintiff amended its petition so that it is based on the unaltered duplicate copy of the security agreement. "Where an instrument has been executed in duplicate, the unauthorized alteration of one of the copies does not ordinarily affect the validity, operation, or effect of the other copy." 4 Am. Jur. 2d, Alteration of Instruments, 10, p. 12. See, also, Jones v. Hoard, 59 Ark. 42, 26 S.W. 193; Stine v. Oasis Oil Co. (Tex. Civ. App.), 290 S.W. 302; Singer v. Murphy, 338 Ill. 620, 170 N.E. 777; Barkley v. Atlantic Coast Realty Co., 170 N.C. 481, 87 S.E. 219; Phillips v. Sipsey Coal Mining Co., 218 Ala. 296, 118 So. 513; Barr v. Ferris, 41 Cal.App.2d 527, 107 P.2d 269.
After the amendment of plaintiff's petition to set out the unchanged duplicate of the security instrument executed on September 3, 1965, the property which plaintiff was entitled to recover was limited to that described in this instrument and the security agreement dated September 27, 1968. This comprised all motor vehicles, petroleum products, tires, motor vehicle supplies, all other supplies, equipment, fixtures, machinery, tools, bulk storage tanks, loading dock, pumps, and accounts receivable. If there were any other items taken under the order of replevin, they are to be returned to the defendant.
The judgment of the district court is affirmed as to all items properly taken under the order of replevin, but the court is directed to ascertain if any other items were taken, and, if so, order their return to the defendant and enter judgment for resulting damages, if any. The cross-appeal is disallowed.
AFFIRMED AS MODIFIED AND REMANDED WITH DIRECTIONS.
WHITE, C.J., participating on briefs.