OAKLAND MEDICAL BLDG CORP v. AUREGUY

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District Court of Appeal, First District, Division 1, California.

OAKLAND MEDICAL BLDG. CORP. v. AUREGUY.*

No. 15496.

Decided: May 08, 1953

W. A. Lahanaier, John F. Gallen, San Francisco, for appellant. Marcel E. Cerf, Robinson & Leland and Emmet B. Hayes, San Francisco, for respondent.

Defendant appeals from a judgment on the pleadings in favor of plaintiff.

Question Presented.

Basically,—would parol evidence be admissible to prove the oral agreement alleged, namely, that the promissory note was to be paid only if the maker received a certain payment from a third party?

Record.

The complaint alleged the execution and delivery by decedent in his lifetime of a $5000 promissory note set forth in haec verba. Defendant answered, admitting, by failure to deny, these allegations; denying, however, that any amount was due, owing or unpaid. By separate defense defendant alleged that one Herrscher was an officer and principal stockholder of both plaintiff and Andrew Williams Stores, Inc., a corporation, and the duly authorized agent of both corporations in their dealings with decedent on the matters involved in the execution of the note; that the Williams corporation was indebted to decedent in the sum of $10,000; that Herrscher ‘representing to said decedent that he was acting on behalf of both corporations hereinabove mentioned, promised and agreed that the sum of $5,000.00 would be advanced to said decedent by the Oakland Medical Building Corporation, to be repaid to said corporation by said decedent only upon receipt by said decedent of the $10,000.00 then owing to decedent from Andrew Williams Stores, Inc., a corporation; that pursuant to said representation, promise and agreement, and in reliance thereon, said decedent accepted said sum of $5,000.00 and executed a note therefor’; that no part of the $10,000 has been paid.

On the motion for judgment on the pleadings defendant conceded that the agreement alleged in the special defense was an oral one. Holding that the admission in the general answer of delivery barred defendant from showing a conditional delivery, and that evidence to show the alleged agreement would constitute an attempt to vary a written instrument by parol evidence, the court granted the motion and entered judgment in favor of plaintiff for the principal, interest and attorney's fees.

Delivery.

Both the court and plaintiff laid stress upon the technical contention that because the answer failed to deny the complaint's allegation of delivery, defendant cannot raise the question of a conditional delivery so as to bring the case within the rule of Harper v. French, 29 Cal.App.2d 214, 84 P.2d 216, where it was held that parol evidence is admissible to show a conditional delivery of a promissory note. There, in the answer, there was a flat denial of delivery. The answer should be considered as a whole and if the allegations of the separate defense showed a claim of conditional delivery, the court would not be justified, because of such failure to deny alone, in granting a judgment on the pleadings. At worst, the answer would be ambiguous or uncertain and could be corrected by amendment. See MacIsaac v. Pozzo, 26 Cal.2d 809, 161 P.2d 449; Fabbro v. Dardi & Co., 93 Cal.App.2d 247, 252, 209 P.2d 91. However, on this point we agree with the court in McArthur v. Johnson, 216 Cal. 580, 15 P.2d 151, which held, in effect, that to be a conditional delivery the facts must show that the two requirements of section 3097, Civil Code, be met, namely, (1) the delivery must be ‘conditional,’ and (2) ‘and not for the purpose of transferring the property in the instrument.’ (Emphasis added.) Here there was no allegation that the property in the instrument was not to be transferred, nor do the facts alleged so indicate. Moreover, at the trial defendant stated that delivery of the note was admitted.

Consideration.

Actually, the defense which the answer attempted to allege was an oral agreement to the effect that the principal of the note was to be repaid only upon receipt by decedent of the moneys owing him from Andrew Williams, and that the consideration for the note failed, as was the case in Harper v. French, supra, 29 Cal.App.2d 214, 84 P.2d 216, where the court held that oral testimony should have been admitted to show the conditional delivery of the note, referred to above, and the alleged oral agreement that the note was not to be paid if the purchaser of certain property from the maker of the note failed to make a payment on the purchase price.

While defendant's answer is not a model in pleading, ‘they are nevertheless entitled to any relief warranted by the facts pleaded * * *. Under the circumstances, it was clearly error for the court to grant the motion for judgment on the pleadings without affording defendants an opportunity to amend, since the defects could be cured by amendment.’ MacIsaac v. Pozzo, supra, 26 Cal.2d 809, 815, 161 P.2d 449, 452.

There appear to be in the authorities two diametrically opposite lines of decision concerning the question of whether parol evidence is admissible as between the original parties to a note to prove an oral agreement that a promissory note unconditional on its face is to be paid only from a certain fund or only in the event of a certain contingency. The parol evidence rule is a very flexible one, and its application quite perplexing. The situation concerning this rule is well stated in 32 C.J.S., Evidence, § 929, p. 852: ‘There is perhaps no rule of law or of evidence which is more flexible or subject to a greater number of exceptions than the rule which excludes parol evidence offered to vary or explain written documents. While it has been said that in the multitude of exceptions much confusion has arisen, so that the exact limit to be placed on the exceptions depends not only on the peculiar facts of each case, but also to some extent on the peculiar cast of thought of the individuals composing the court, it may be stated generally that the courts have endeavored to adapt their rulings, either way, to the obvious demands of abstract justice in each particular case. The result is that, while the decisions are fairly uniform with respect to their abstract statements of the limitations of and exceptions to this rule, when the question arises as to whether a case presenting a particular state of facts comes within the general rule, or is taken out of it by one of the recognized limitations or exceptions, or again brought within it by one of the numerous limitations of, and exceptions to, those limitations and exceptions, the authorities are in many instances in hopeless conflict.’ (See also section 948 for discussion of the exception to the rule permitting oral evidence to show want or failure of consideration, and section 951 discussing the application of the exception to promissory notes.)

On the theory that unless said fund was received by the maker or the contingency occurs there is a want or failure of consideration, evidence to show such oral agreement was held admissible in Harper v. French, supra, 29 Cal.App.2d 214, 84 P.2d 216, and in the following cases: Billings v. Everett, 52 Cal. 661, where it was alleged that by oral agreement the note was not to be paid unless the payee constructed a certain canal; Jefferson v. Hewitt, 103 Cal. 624, 37 P. 638, where it was alleged that by oral agreement the note was not to be paid unless the payee constructed a certain railroad; North v. Evans, 117 Cal.App. 317, 3 P.2d 609, where it was alleged that by oral agreement the notes were not to be paid until the happening of a certain condition; Muir v. Hamilton, 152 Cal. 634, 93 P. 857, where it was alleged that by oral agreement the notes were not to be paid unless certain litigation was resolved in favor of the maker. In Cooper v. Cooper, 3 Cal.App.2d 154, 39 P.2d 820, it was held that oral testimony was admissible to show that the note was not intended by the parties as a promissory note but merely as a receipt for money paid the defendant pursuant to an oral declaration with respect to capital stock, and also to show want of consideration.

In Richardson v. Lamp, 209 Cal. 668, 290 P. 14, it was held that parol evidence was admissible to show an oral agreement that the promissory note sued upon, was only to be paid from moneys due the makers from third parties on the theory that ‘The true consideration or the want of consideration may always be shown by extrinsic evidence for the purpose of impeaching a contract, notwithstanding that it states facts to show a valuable consideration.’ 209 Cal. at page 670, 290 P. at page 15. This is in accordance with section 1962, subdivision 2, Code of Civil Procedure, which provides that the following presumption is deemed conclusive: ‘The truth of the facts recited, from the recital in a written instrument between the parties thereto, or their successors in interest by a subsequent title; but this rule does not apply to the recital of a consideration’. (Emphasis added.)

The rule of these cases is succinctly stated in the Muir case, supra, 152 Cal. at page 636, 93 P. at page 858, ‘* * * as between the original parties to an instrument, nothing is better settled than that the maker may show an original lack of consideration, or subsequent failure of consideration, which latter was done in this case. And equally is it well settled that such lack or failure of consideration may be shown by parol. [Citations.]’

Moreover, ‘Parol evidence is admissible to show absence or failure of consideration as against one not a holder in due course.’ Brannan's Negotiable Instruments Law, Beutel, 6th ed., § 28, p. 416.

‘There is nothing in the Act or in the rule against parol evidence to vary the terms or legal effect of a writing which, as between the parties, precludes proof of no consideration or failure of consideration.’ Uniform Laws, Annotated, vol. 5, part 1, § 28, note 341, p. 395.

Then, there is a line of cases holding that parol evidence cannot be admitted for this purpose because it would violate the parol evidence rule. Among these cases is McArthur v. Johnson, supra, 216 Cal. 580, 15 P.2d 151, where in an action on a note, parol evidence was admitted which tended to establish an oral agreement that it was to be paid only out of the maker's share of certain commissions earned jointly by him and the payee. On appeal it was held that such evidence was inadmissible to show an agreement that the note should be paid out of a particular fund. There, the parol evidence was to show that the note, differing from its face, was to be paid only out of certain commissions. In our case it was not to be paid necessarily from the moneys to be received from Andrew Williams but only if defendant received such moneys. If he did not, the consideration would fail. This however, is a distinction without a difference. Van Fleet-Durkee, Inc., v. Oyster, 91 Cal.App.2d 411, 205 P.2d 32, likewise held that parol evidence to prove that the ntoes were to be paid only out of profits of the mining venture was not admissible. Apparently, however, it held admissible evidence to show that there was an understanding that the notes were to be cancelled as a part of the maker's interest in a new partnership.

In the cases strictly applying the parol evidence rule, above mentioned, there was no discussion of the defenses of what or failure of consideration, and therein lies the distinction between the two lines of cases. In our case, the language of the answer is susceptible of the interpretation that the $5000 which decedent received from plaintiff on the execution of the note was merely an advance part payment of the moneys due decedent from the other corporation, to be repayable only in the event decedent received that indebtedness. This was a situation similar to that in Cooper v. Cooper, supra, 3 Cal.App.2d 154, 39 P.2d 820, where through the admission of parol evidence the note was held to be merely a memorandum of the transaction. In our case the moneys to come from the other corporation not having been received, there would be a partial failure of consideration for the note executed by him.

The judgment is reversed.

BRAY, Justice.

PETERS, P. J., and FRED B. WOOD, J., concur.