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(5 Kan. App. 279)

LOONEY v. REEVES et al. (Court of Appeals of Kansas, Northern Department, C. D. Jan. 18, 1897.) CONFLICT OF LAWS-RES JUDICATA-COVENANTS

WARRANTY-DAMAGES-MITIGATION.

1. The record of a judgment rendered by a court of another state is not admissible in evidence for the purpose of proving the determination of a fact involved in the trial of a case in a district court of this state, when such record shows that such judgment was rendered without jurisdiction of one of the necessary parties.

2. In an action in this state to recover on the covenants of warranty in a deed executed in this state for a failure of title to real estate situated in the state of Missouri, the measure of recovery is governed by the laws of this state.

3. When the title to real estate fails, the measure of the vendee's recovery on the vendor's covenants of warranty is the purchase price. When no definite price is agreed upon, but there is an exchange of lands, the agreed value, or, if none, the market value, of the lands given in exchange, is the measure of damages.

4. In an action brought by the vendee of lands to recover damages for a want or defect of title, the vendor may show, in mitigation of damages, that before the trial he had perfected the title in the plaintiff.

(Syllabus by the Court.)

Error from district court, Ellsworth county; W. G. Eastland, Judge.

Action by W. H. Reeves and another against Ozroe B. Looney. From a judgment for plaintiffs, defendant brings error. Reversed.

Ira E. Lloyd, for plaintiff in error. N. Coover and C. J. Evans, for defendants in

error.

the deed to Looney the consideration for the Ellsworth county land was placed at $7,000. The court instructed the jury that if they should find that the deed from Looney expressed the actual consideration received by him for the Missouri land, the plaintiffs would be entitled to recover the amount thereof as damages for a breach of the covenants of title; but that, if they should find that it was understood that the land was of much less value, or was valued at a much less sum than that expressed in the deed, then they should ascertain such valuation, and return a verdict in favor of the plaintiffs for the amount thereof. An instruction was also given that if the jury should find and believe from the evidence that no specified sum was understood or agreed upon between the parties as the valuation of the land, but that the sum of $1,500 was inserted therein as a matter of convenience only, then the plaintiffs would be entitled to recover as their damages the amount which the jury should find and determine from the evidence to be the consideration which was actually paid or given for the land. The jury found that neither deed expressed the actual consideration for the land therein mentioned, and also made the following special findings of fact: "(4) On October 29, 1890, what was the market value of the real estate described in the deed offered in evidence, and dated October 29, 1890, being the deed from Mary Reeves and A. P. Reeves to O. B. Looney? Ans. $4,460.80. (5) When O. B. Looney received the said deed described in the preceding interrogatory, did he not pay to the said Mary Reeves, or the plaintiffs in this action, the sum of $500, and also execute to the plaintiffs in this action the deed, a copy of which is attached to the plaintiffs' petition? Ans. Yes. (6) Was the transaction between the Reeveses and Looney in the exchange of real estate simply a trade of one tract of land for the other, Looney paying $500 in addition to the Missouri land, without reference to any particular valuations so far as the Missouri land was concerned? Ans. Yes."

CLARK, J. This is an action brought in the district court of Ellsworth county by William H. Reeves and James O. Reeves to recover from Ozroe B. Looney $1,500 damages upon alleged breach of covenants contained in a deed of general warranty to 120 acres of land in Cape Girardeau county, Mo. The plaintiffs recovered a judgment for $649.65, and the defendant, as plaintiff in error, has brought the case to this court. The evidence preserved in the record clearly shows that on October 29, 1890, Looney claimed to be the owner of said real estate, and that Mrs. Mary Reeves, the mother of the defendants in error, was the owner of land in this state situated in said Ellsworth county, upon which there was an incumbrance of about $3,350; that on said October 29th, in said Ellsworth county, by virtue of a trade which was then and there consummated, Mrs. Reeves conveyed to Looney her Ellsworth county land, subject to the incumbrances thereon, and Looney, in consideration therefor, at the same time and place, executed to the defendants in error the warranty deed above mentioned, and paid in cash, either to Mrs. Reeves or to her said sons, the sum of $500; that the consideration for the land so conveyed by Looney, as expressed in the deed, was $1,500, while in

In answer to the first question raised by the plaintiff in error we need only to state that the deed containing the covenant of warranty was executed in this state, and the covenantee is here seeking to recover for a breach of such covenant. The damages in such case must be computed according to the law in this state.

The plaintiff in error complains of the admission in evidence of the record of a judgment of eviction rendered in Missouri against the defendants in error, and the giving of an instruction to the effect that such record disclosed a valid judgment. This record shows that the Missouri court acquired no jurisdiction of W. H. Reeves, yet it proceeded to render a judgment against him. As, under the numerous decisions of our supreme court, that judgment against W. H. Reeves

was void, it was error to admit such record in evidence for the purpose of showing a judgment against him; and the court also erred in its instructions to the jury respecting said record, and in refusing to instruct the jury as requested by the plaintiff in er

ror.

Beveridge, 15 Minn. 205 (Gil. 160); Lacey v. Marnan, 37 Ind. 168; Hodges v. Thayer, 110 Mass. 286; Evans v. Fulton (Mo. Sup.) 36 S. W. 230. Because of the errors of the court herein pointed out, the judgment will be reversed, and the cause remanded for further proceedings in accordance with the views expressed in this opinion.

Complaint is also made of the ruling of the court in refusing to permit the plaintiff in error to introduce evidence tending to show that since the commencement of this action he had acquired a good title to the Missouri land, and that under the laws of that state such after-acquired title inured to the benefit of the defendants in error. The court erred in this ruling. Such evidence was admissible in mitigation of damages. King v. Gilson, 32 Ill. 348; Bank v. Glenn, 68 N. C. 35; Reese v. Smith, 12 Mo. 344; Baxter v. Bradbury, 20 Me. 260; 3 Sedgw. Dam. § 978; Kimball v. Bell, 49 Kan. 173, 174, 30 Pac. 240. It is finally contended that, as no stipulated price for this land was agreed upon in the trade, the measure of damages upon a failure of title thereto would be the actual value of the property at the time of the trade, with interest thereon from the date of eviction, and that the court erred in refusing to so instruct the jury, as well as in ruling out evidence offered tending to show the value of said land, and that the same was less than $200. The defendants in er- | ror insist, however, that the measure of damages upon the breach of covenants of title to real estate is the purchase price paid therefor, with interest from the date of eviction, and that the court properly instructed the jury upon this point; and that, as there was no understanding or agreement between the parties, when making the trade, that the value of the 120 acres should in that transaction be estimated by them at any particular sum, the value of the property given in exchange therefor must necessarily be deemed the purchase price. It is well settled that, where the title to real estate fails, the measure of the vendee's recovery on the vendor's covenant of warranty is the purchase price. Stebbins v. Wolf, 33 Kan. 765, 7 Pac. 542; Reese v. Smith, supra; Baxter v. Bradbury, supra; Dickson v. Desire's Adm'r, 23 Mo. 151; King v. Gilson, supra. The jury evidently arrived at their estimate of damages by deducting from the value of the Ellsworth county land the amount of the incumbrances thereon and the $500 paid by Looney. This would leave $610.80 as the actual consideration paid for the 120 acres; and this sum, with interest thereon from the date of eviction, would equal the amount of the general verdict. We see no objection to this method of ascertaining the amount of damages sustained by the defendants in error. Where no definite price is agreed upon, but there is an exchange of lands, the agreed value, or, if none, the market value, of the lands given in exchange therefor, is the proper measure of damages. Burke v.

(5 Kan. App. 326) CHAPMAN v. STEINER et ux. (Court of Appeals of Kansas, Northern Department, C. D. March 22, 1897.) NONNEGOTIABLE NOTE-ASSIGNMENT-PAYMENT TO ASSIGNOR.

1. Where a note, otherwise negotiable in form, contains the following clause: "In case of the breach of any of the covenants or conditions in the mortgage deed securing this bond contained, to which said deed reference is hereby made, and which is made a part of this contract, in either such case the said principal sum with all accrued interest shall, at the election of the legal holder or holders hereof, at once become due and payable without further notice, and may be demanded and collected, anything herein contained to the contrary notwithstanding," held, that this clause renders the note a nonnegotiable instrument.

2. Where the maker of a nonnegotiable instrument pays the same to the payee named therein without notice that the same has been assigned to other parties, in good faith, believing that the payee is entitled to collect the same, such payment is an extinguishment of the indebtedness.

(Syllabus by the Court.)

Error from district court, Ellsworth county; W. G. Eastland, Judge.

Action by C. C. Chapman against John Steiner and Frances Steiner, his wife. Judgment for defendants, and plaintiff brings error. Affirmed.

Wheeler & Switzer, for plaintiff in error. Ira E. Lloyd, for defendants in error.

MCELROY, J. On the 2d day of August, 1886, the Western Farm-Mortgage Company, of Lawrence, a corporation, organized and doing business under the laws of the state of Kansas, loaned to John Steiner and Frances Steiner the sum of $500, and accepted as evidence of such indebtedness their real-estate coupon bond, payable to the order of one W. J. Neill at the Third National Bank in the city of New York on the 1st day of August, 1891, which real-estate mortgage bond is in words and figures as follows: "No. 5,999. United States of America. $500.00. RealEstate Mortgage Coupon Bond. Secured by First Mortgage. 8 Per Cent. Semiannually. Know all men by these presents, that the undersigned, of the county of Ellsworth, and state of Kansas, do, for value received, hereby acknowledge ourselves to be indebted, and by these presents promise to pay to the order of W. J. Neill the principal sum of five hundred dollars in lawful money of the United States of America, at the Third National Bank in the city of New York, on the first day of August, A. D. one thousand eight hun

dred and ninety-one, with interest thereon at the rate of seven per cent. per annum, from date, payable semiannually on the first days of February and August in each year until said principal sum shall be fully paid according to the tenor and effect of ten interest notes of seventeen and 50/100 dollars each, bearing even date herewith, hereto annexed, payable at said Third National Bank in the city of New York, provided said principal sum and the interest thereon be paid at maturity; but, in case of default and election as hereinafter provided, then it is expressly agreed that this bond shall draw interest at the rate of twelve per cent. per annum from date, and, if suit be instituted for the collection hereof, a reasonable sum shall be added as attorney's fees. It is agreed that every installment of interest evidenced by coupon hereto annexed, not paid at maturity, shall draw interest at the rate of twelve per cent. per annum until paid. It is further expressly agreed that in case of default in the payment of any installment of interest, or any portion thereof, for the space of ten days after it becomes due and payable, or in case of the breach of any of the covenants or conditions in the mortgage deed securing this bond contained, to which said deed reference is hereby made, and which is made a part of this contract, in either such case the said principal sum, with all accrued interest, shall, at the election of the legal holder or holders hereof, at once become due and payable without further notice, and may be demanded and collected, anything herein contained to the contrary notwithstanding. All appraisement, homestead, exemption, and stay laws are hereby expressly waived. It is further expressly agreed and declared that this bond and the interest notes hereto annexed are made and executed under, and are in all respects to be governed and construed by, the laws of the state of Kansas, and are given for an actual loan of five hundred dollars; said loan being secured by a mortgage deed on real estate, duly recorded. In witness whereof we have hereto affixed our hands and seals and made delivery hereof, at Lawrence, Kansas, this second day of August, A. D. 1886." On the same day the defendants in error executed and delivered to said W. J. Neill their mortgage deed, by which they conveyed to the said W. J. Neill certain real estate located in Ellsworth county, Kan., to secure said note, together with the interest thereon. About January 29, 1887, W. J. Neill assigned and delivered said bond to the plaintiff in error. Steiner paid the several installments of interest, and finally, on about the 1st day of August, 1892, he remitted by bank draft the entire amount then due on the bond and mortgage, being the principal sum and interest thereon, amounting in the aggregate to $522.50. All of these payments and remittances were made by Steiner to the mortgage company, which made the loan originally, although the name of the company had been

changed to the Western Farm-Mortgage Trust Company of Denver.

After the maturity of said note, and on the 13th day of February, 1893, the plaintiff in error brought this action in the district court below to recover from the defendants in error upon said promissory note, and to foreclose the mortgage securing the same. To the petition filed in said action below, the defendants in error filed an answer in due time, alleging as defenses substantially as follows, to wit: First. That the loan evidenced by said note was negotiated by the Western Farm-Mortgage Company, a corporation at Lawrence, Kan.; that, while the note was executed to W. J. Neill as payee, the Western FarmMortgage Company was the real party in interest, and that the said W. J. Neill had no interest therein except as the agent and representative of the Western Farm-Mortgage Company; that the Western Farm-Mortgage Trust Company of Lawrence was, after the negotiation of said loan, organized for the purpose of succeeding to the business of the Western Farm-Mortgage Company; that the defendants in error had no notice, actual or constructive, of the transfer and sale of said note by said W. J. Neill, of the Western Farm-Mortgage Company, to the plaintiff in error. Second. That after the execution of said note and mortgage defendants in error paid the interest as the same became due, either to the Western Farm-Mortgage Company or to the Western Farm-Mortgage Trust Company, its successor, and at the maturity of said note paid the principal to the Western Farm-Mortgage Trust Company at its office in Denver, Colo. Third. That at the time said note was paid to the Western Farm-Mortgage Trust Company at Denver, Colo., the said company was acting as the duly-authorized agent of the plaintiff in error for the collection of the same.

FOT

To this answer the plaintiff in error filed a reply, admitting the negotiation of the loan by the Western Farm-Mortgage Company, and the organization and succession in business of the Western Farm-Mortgage Trust Company; and also admitting the payment of the several interest coupons to the Western Farm-Mortgage Company and the Western Farm-Mortgage Trust Company by the defendants in error, but denying the agency or authority of either of said companies to collect the interest or the principal for the plaintiff in error; and alleged that the plaintiff in error had not knowledge of the fact that W. J. Neill was not the real payee in the said note, or of the relation existing between the Western Farm-Mortgage Company and the Western Farm-Mortgage Trust Company, or of the fact that the defendants in error had paid either interest or principal, as alleged in their answer, to the Western Farm-Mortgage Company or the Western Farm-Mortgage Trust Company; that the interest coupons and the principal note were made payable by their express

terms at the Third National Bank of New York City; and that the interest coupons were paid in due course of business through the said Third National Bank of New York City, where they were made payable; and that the plaintiff in error had nothing to do with W. J. Neill, the Western Farm-Mortgage Company, or the Western Farm-Mortgage Trust Company, in the way of receiving interest or principal upon said note after it was delivered to him.

Upon the issues as thus formed the case was tried, and the facts disclosed upon the trial are as follows, to wit: First. That the mortgage and note were executed as alleged in the plaintiff's petition. Second. That the note was assigned as follows, to wit: "For value received, I hereby assign and transfer the within bond, together with all my rights, title, and interest in the mortgage deed securing the same, to ;" and was then delivered to the plaintiff in error on or about January 29, 1887. Third. That the loan evidenced by said note was negotiated by the Western Farm-Mortgage Company, and that W. J. Neill was simply a nominal party as payee therein, and acted simply as the agent or representative of the Western Farm-Mortgage Company. Fourth. That the Western Farm-Mortgage Trust Company was organized for the purpose of succeeding to the business of the Western Farm-Mortgage Company. Fifth. That the defendants in error paid the several interest installments as they became due to the Western Farm-Mortgage Company and its successor, the Western Farm-Mortgage Trust Company. Sixth. That there was no assignment of the mortgage sued on in this action recorded in the office of register of deeds of Ellsworth county, Kan., and that on July 20, 1891, and before the defendants in error had notice that the note and mortgage had been transferred to the plaintiff in error, said defendants Steiner paid the amount due thereon in full, $522.50, to the Western Farm-Mortgage Trust Company of Denver, and that said company retained the principal amount of said note, the $500 remitted to it by Steiner, --and failed and neglected to forward the same to the then owner and holder of the bond and mortgage, C. C. Chapman. The case was submitted to the jury upon the admissions of the parties and the evidence under the instructions of the court, and the jury returned a general verdict in favor of the defendants in error, and certain special findings of fact. The plaintiff in error duly filed his motion for judgment upon the special findings of fact, and also his motion for a new trial, both of which were overruled by the court, excepted to by the plaintiff in error, and the case is here for review. The questions to be considered here are:

1. Is the note sued on a negotiable instrument? "It is further expressly agreed that in case of default in the payment of any installment of interest, or any portion there48 P.-39

of, for the space of ten days after it becomes due and payable, or in case of the breach of any of the covenants or conditions in the mortgage deed securing this bond contained, to which said deed reference is hereby made, and which is made a part of this contract, in either such case he said principal sum, with accrued interest, shall, at the election of the legal holder or holders hereof, at once become due and payable without further notice, and may be demanded and collected, anything herein contained to the contrary notwithstanding." By this clause the mortgage is made a part of the bond or note. By this reference each and every condition, provision, and stipulation in the mortgage deed becomes as much a part of the bond as if the same was written therein, and it is necessary to examine the mortgage in order to ascertain what are really the provisions and conditions of the bond or note, for the reason that such mortgage is made a part of, and incorporated into, the bond or note by its terms. In this mortgage the Steiners agreed to pay all the taxes and assessments levied upon said premises when the same are due, and insurance premiums for the amount of insurance therein specified; and, if not so paid, the legal holder of the mortgage may, without notice, declare the whole sum of money therein secured at once payable, or may elect to pay such taxes, assessments, and insurance premiums. The amount so paid shall be a lien on the premises, and be secured by the mortgage, and collected in the same manner as the principal debt, together with interest at the rate of 12 per cent. per annum. But whether the legal holder of this mortgage elects to pay such taxes, assessments, or insurance premiums or not, it is distinctly understood that the legal holder thereof may immediately cause this mortgage to be foreclosed, and shall be entitled to the immediate possession, of the premises, and the rents, issues, and profits thereof. It also contains an agreement that the mortgagors will keep the buildings, fences, and other improvements upon said premises in as good repair and condition as the same now are, and that said mortgagors will abstain from the commission of strip or waste on said premises until the whole sum of money thereby secured is fully paid. It also contains an agreement that, in case of the breach by the said mortgagors of any of the covenants or agreements contained in said mortgage, then the bond secured thereby shall bear interest at the rate of 12 per cent. from that date, and that the conveyance shall become absolute, and that the mortgagee shall be entitled to the possession of the mortgaged premises, and to have and receive the rents and profits thereof. It also contains covenants that at the delivery thereof the mortgagors were the lawful owners of the premises, and that they were seised of a good and indefeasible estate of inheritance therein, free and clear of all in

cumbrance, and that they would warrant and defend the same in the quiet and peaceable possession of the mortgagee, his heirs and assigns forever, against the lawful claims of all persons whomsoever. In Killam v. Schoeps, 26 Kan. 310, the supreme court held that an instrument which contained a contract in respect to the title to personal property, and for the possession thereof, was not a negotiable promissory note; and Brewer, J., said in the opinion: "You may not incorporate with such a promise stipulations and agreements as to other matters, and then say that the absolute promise to pay money lifts the contract into the region of negotiable paper. This is the general rule, and, whatever exceptions there may be, this is not one. In 1 Daniel on Negotiable Instruments (paragraph 59), the rule is thus stated: 'In the sixth place, it is essential to the negotiability of the bill or note that it purport to be only for the payment of money. Such, at least, may be stated to be the general rule, for, if any other agreement of a different character be ingrafted upon it, it becomes a special contract, clogged and involved with other matters, and has been deemed to lose thereby its character as a commercial instrument.' * * * We conclude, then, that whenever any stipulation concerning other matters than the payment of money is incorporated in one instrument with a promise to pay money, such double contract will not be adjudged a negotiable paper." In Iron Works v. Paddock, 37 Kan. 510, 15 Pac. 574, it was held "that, where a note contains other provisions than the unconditional payment of money, it is nonnegotiable." We hold that the bond in contro

versy is a nonnegotiable instrument. It therefore follows that the court did not err in instructing the jury "that the note sued on in this action was a nonnegotiable instrument.".

was not recorded, and Steiner had no notice of such assignment. He paid the money to the Farm-Mortgage Trust Company, believing that such company was the owner of the note and mortgage. He had no notice that the bond and mortgage belonged to any one other than the mortgage company. Steiner had made all his interest payments to this company, and in due time thereafter the interest coupons were returned to him marked "Paid" by such company. Ping. Mortg. § 1151, "Assignment of Mortgage and Debt": "The payment of the bond by the mortgagor to the mortgagee without notice of an unrecorded assignment defeats the claim of the assignee, and entitles the mortgagor to its cancellation. * The mortgagor may pay or settle with a person having the apparent authority to receive satisfaction of the mortgage, and a payment thus made will prevail against one having a secret, concealed, and reserved interest in the mortgage. After the mortgagor has notice of the assignment, he cannot then deal lawfully with the mortgagee in making payment of the debt." In Lockrow v. Cline, 4 Kan. App. 716, 46 Pac. 720, this court held that a note. the same in form as the one under consideration, was a non-negotiable note, and that payment of the same made to the Western Farm-Mortgage Trust Company by Cline, without notice of the assignment, was an extinguishment of the indebtedness. Section 3, c. 68, Gen. St., being paragraph 3887, Gen. St. 1889, reads: "The recording of the assignment of the mortgage, shall not be deemed of itself, notice to a mortgagor, his heirs or personal representatives so as to invalidate any payment made by them, or either of them to the mortgagee." We think this section has reference to mortgages standing alone, or to a mortgage securing debts and notes of a nonnegotiable character. In Burhans v. Hutcheson, 25 Kan. 625, the supreme court says, with reference to this section of the statute: "A better interpretation, and one clearly more in accord with the law of mortgages of this state, is that such section has reference only to a mortgage standing alone, or one securing debts and notes of a nonnegotiable character. Under this interpretation section 3 of the statute is not nugatory, but has ample room for operation." We think the jury were warranted in finding that Steiner acted in perfect good faith in the payment of this note. and that, in consequence, he was entitled to the verdict, and that the findings and the verdict of the jury were in accordance with the evidence and law.

2. Did the payment to the Western FarmMortgage Trust Company operate to discharge the defendants in error from liability to the plaintiffs in error? The payee, W. J. Neill, at the time of the execution of the mortgage, was a clerk in the office of the Western Farm-Mortgage Company, and afterwards held the same position with the trust company.. He had no interest whatever in this bond, or the mortgage given to secure its payment. The Western FarmMortgage Trust Company was organized for the purpose of succeeding to the business of the former company, and each of said companies directed Steiner to make his payment to the Denver company. The trust company, of Denver, regularly sent notices to Steiner of the date when his interest and principal would mature, and requested payment to be made to it. Steiner had no notice that the plaintiff in error owned, or claimed to own, any interest in the note and mortgage, until long after he made the final payment. The assignment of the mortgage

*

There was one instruction given by the court in this case, which, if examined alone, would seem to be misleading; but this instruction, when examined in connection with the admissions of the parties at the trial, and in connection with the undisputed evidence in this case, could not prejudice the rights of plaintiff in error. There was no

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