WESTERN COAL MINING CO v. JONES (1945)

This is an action to collect on three promissory notes, each of which had been assigned to the plaintiff by the original payee. The principal amount of these notes was $15,000, $10,000 and $213,000, respectively. The first two matured on January 2, 1934, and the third matured on January 3, 1934.

These notes, all payable at St. Louis, Missouri, were signed by the defendant and three other men and were secured by certain stock in the S. A. Gerrard Company, a corporation, which stock had been pledged for this purpose through a trust arrangement with a trust company.

In 1938, the S. A. Gerrard Company was reorganized and with the consent of this defendant certain new stock in that company was exchanged for the old stock and was deposited with the trust company and substituted for the old stock as security for these notes.

The new stock thus substituted was duly sold in 1940 and the proceeds were credited on these notes on July 19, 1940, $10.48 being credited on the first note, $6.97 on the second note, and $148.58 on the third note. No other payment was ever made on any of these notes and no demand for payment was ever made prior to the bringing of this action on October 20, 1941.

The defendant set up a number of defenses, including one that any action was barred by the statute of limitations. After a trial, judgment was entered in favor of the defendant based upon fidnings and conclusions to the effect that the statute of limitations had run against each of the notes, and that there had been no new or continuing contract sufficient to take this case out of the operation of the statute. From this judgment the plaintiff has appealed.

The appellant contends that the findings and conclusions of law referred to are erroneous and not supported by the evidence. This contention is based on the respondent's consent to the substitution of the new stock is the S. A. Gerrard Company for the old stock in connection with the reorganization of that company.

On December 13, 1938, the appellant wrote to the respondent stating that it was enclosing a form of agreement for his signature ‘covering the exchange of stock in the S. A. Gerrard Company pursuant to the Plan or Reorganization’ and asking the defendant and his wife to sign the agreement ‘so that there may be no question about the authority for the exchange, the endorsement of the new stock by you and Mrs. Jones, and its return to us in place of the stock we now hold as collateral’ on the notes. The agreement which was enclosed, and which had been prepared by the appellant or its attorney, was signed and returned by the respondent. It reads as follows:

‘_____ 1938

‘Western Coal and Mining Company

‘Missouri Pacific Building

‘St. Louis, Missouri

‘Gentlemen:

‘The undersigned, in consideration of your consenting and agreeing to the Plan of Reorganization proposed by The S. A. Gerrard Company submitted by that Company on or about July 25, 1938 to the Income Debenture holders and the Stockholders of said Company, does hereby agree that, upon Western Coal and Mining Company delivering to The S. A. Gerrard Company the certificates for the Common Stock of the S. A. Gerrard Company which Western Coal and Mining Company holds as security for the obligations of the undersigned, and others, to the Western Coal and Mining Company, for exchange for the new Common Stock of The S. A. Gerrard Company pursuant to the said Plan of Reorganization, to endorse, in blank, ready for transfer, the certificates for said new Common Stock issued in exchange for said deposited stock; such endorsement to be in, substantially, the same manner and for the same purpose that said deposited Common Stock has been endorsed by the undersigned.

‘Said new Common Stock, when so endorsed and when received by Western Coal and Mining Company, will be deemed substituted by Western Coal and Mining Company, as holder of the certain notes signed by the undersigned and other parties and without releasing or in anywise impairing the liability of the undersigned under said notes; and said new Common Stock so deposited under said notes shall be as fully subject to the lien of said notes as if specifically referred to and described in said notes.

‘(Sgd) George H. Jones.’

The letter from the appellant transmitting this agreement does not ask for or mention any acknowledgment of the debt for which the stock had been pledged, any admission fo the justice of that debt, or any expression of willingness to pay the same. The request contained therein is merely for the respondent's consent to a substitution of stock in the reorganized company, as proposed, for the old stock held as security, with an agreement to endorse the new stock to enable such an exchange to be made. The agreement is to the same effect and provides for the respondent's consent to this substitution in the form of the same security, with a provision that such a substitution should not change the appellant's position, and should not impair the liability of the respondent as it then existed. The agreement provides only for the respondent's consent to this substitution in the form of the same security and for nothing else. While the respondent consented to such a substitution, thereby agreeing that the appellant's security should remain the same regardless of any technical change in form, he in no way expressed a willingness to change his own position in any other respect. While he was willing that the appellant should retain whatever security it then had, he neither was asked for nor gave any admission or acknowledgment of the justness of the debt or of his willingness or intention to pay that debt or any part of it, other than and except as he had already paid it by giving the security, which was the sole matter considered in these documents.

This view was upheld by the Supreme Court of Arizona in another action on these same notes, involving a consideration of these same documents, which was brought against another of the makers of these notes. Western Coal & Mining Co. v. Hilvert, 60 Ariz. 537, 142 P.2d 411. We are in accord with the views therein expressed.

It is well settled in this state that where the statute of limitations has already run upon a note and where reliance is placed on a new promise to pay which is thereafter made the action must be based upon the new obligation rather than upon the original note. McCormick v. Brown, 36 Cal. 180, 95 Am.Dec. 170; Curtis v. City of Sacramento, 70 Cal. 412, 11 P. 748; Lambert v. Schmalz, 118 Cal. 33, 50 P. 13; Sanford v. Bergin, 156 Cal. 43, 103 P. 333.

Since the appellant prepared the agreement or consent here relied upon, any ambiguity or insufficiency therein is chargeable to it. Golden West Credit & Adjustment Co. v. Peardon, 138 Cal.App. 481, 32 P.2d 1105; Cockrill v. Boas, 213 Cal. 490, 2 P.2d 774; Weil v. California Bank, 219 Cal. 538, 27 P.2d 904; Hunt v. United Bank & Trust Co., 210 Cal. 108, 291 P. 184.

An acknowledgment which is sufficient to renew an obligation after it has been barred by the statute of limitations must be one which is a direct, distinct, unqualified and unconditional admission of the existence and justice of the debt and of the party's willingness to pay the same. Many cases support this proposition, of which only a few need be cited in addition to those heretofore referred to. Pierce v. Merrill, 128 Cal. 473, 61 P. 67, 79 Am.St.Rep. 63; Textile Nat. Bank v. Lawrence, 49 Cal.App. 84, 192 P. 880; Clunin v. First Federal Trust Co., 189 Cal. 248, 207 P. 1009; Fontana Land Co. v. Laughlin, 199 Cal. 625, 250 P. 669, 48 A.L.R. 1308; In re Estate of Azevedo, 17 Cal.App.2d 710, 62 P.2d 1058; Heiser v. McAlpine, 20 Cal.App.2d 467, 67 P.2d 141.

There is a wide difference between a willingness that a creditor should retain such security as has already been given him and a willingness, after the statute of limitations has run, to acknowledge and agree to pay the full amount of an original debt regardless of how much may be obtained from the security which has been given. The appellant cites certain cases in which it has been held that the giving of new and additional security is a sufficient acknowledgment and expression of a willingness to pay to constitute a renewal of the obligation. Those cases are not applicable here. No new or additional security was given and the only thing that appears is a consent to a change in the form of the security already given which, in practical effect, left the parties and the security in exactly the same position they were in before the exchange was made. No admission or acknowledgment here appears which is sufficient to establish a new obligation after the bar of the statute had come into effect.

The appellant further contends that the court's findings with respect to the third note are without support for the reason that this note, by its own terms, provides for extensions from time to time which prevented the statute from running. The body of this note reads as follows:

‘213,000.00 St. Louis, Mo. January 3, 1933 on demand after date, and if no demand is made, then on the 3rd day of January, 1934, we promise to pay to the order of Festus J. Wade, Jr., at the office of First National Bank in St. Louis, the sum of Two Hundred and Thirteen Thousand Dollars for value, with interest from date at the rate of six per cent (6%) per annum, payable semi-annually until maturity, and at the rate of eight per cent per annum after maturity until paid. Demand for payment, protest and notice of dishonor are hereby waived by all parties, whether as signers, endorsers, guarantors, or in any other capacity, and this note may be extended from time to time without notice and without releasing any of said parties. If this note be not paid at maturity, the parties hereto agree to pay, in addition, all costs of collection and ten per cent attorney's fees.’

While the complaint contains an allegation that ‘said note was extended from the time of the maturity thereof to July 19, 1940,’ no effert was made to prove such an extension and there is an entire absence of evidence in that regard aside from the terms of the note itself. It was, and is, the appellant's position that no action on its part was necessary and that the provision ‘this note may be extended from time to time without notice and without releasing any of said parties' was self-executing and constituted an automatic extension of the time for paying the note with a consequent waiver of the statute of limitations. While it is contended that the appellant had the right to consider the due date as extended to July 19, 1940, the date when the proceeds from the sale of the security were credited on the note, it is conceded that no affirmative action of any kind was taken by the appellant and that no resolution or other affirmative act was made or taken by its board of directors, or by any of its agents, to thus extend the time for payment of this note.

In support of its contention that the terms of this note provide for an automatic extension thereof the appellant relies on Hasman v. Canman, 136 Cal.App. 91, 28 P.2d 372, 373. That case involved a note which provided that if it was not paid at maturity ‘it is hereby renewed from year to year, at the option of the holder, until paid, and during such year the makers thereof shall not have the right to pay the same.’ The court held that the contract itself definitely provided for its own extension and that the forbearance of the owner to sue, together with the fact that she had collected the interest after the due date, was sufficient evidence of her exercise of the option to renew the note from year to year. The note here in question, instead of definitely providing for any extension for a specific time, provides that ‘this note may be extended from time to time without notice.’ This provision is contained in a clause relating to the waiver of protest and notice of dishonor in case of nonpayment. This clause seems to have been intended as a full and complete waiver of the technical formalities that might otherwise be necessary to bind any parties who might be merely endorsers or guarantors, regardless of whether or not the date of payment should be extended. While this clause provides that no demand or notice is necessary, the main provision with respect to payment is that the note is payable on demand and if no demand is made then it is payable on January 3, 1934. The language used is rather ambiguous, and the expression ‘may be extended from time to time without notice and without releasing any of said parties' may have been intended to obviate the necessity of any notice of extension being given to those who were endorsers or guarantors.

In any event, the note does not provide for an automatic extension but at best provides that it ‘may be extended from time to time.’ Although a right to extend may have been thus given, the exercise of that right called for some affirmative act. Any such extension may not be for an indefinite time. It is from ‘time to time,’ which means from one specific time to another. Such a fixing of time cannot be automatic and clearly calls for a definite and concrete act in extending the time to a specific date. If we assume that the holder of the note could perform this act at any reasonable time after the note otherwise became due, the act would still have to be performed before the right to do so had become barred by the statute. Nothing in the terms of this note supports the appellant's contention that it had a right, after taking no action of any kind for nearly seven years, and after discovering that the security was inadequate, to eventually decide to consider the application of a credit on the notes on July 19, 1940, as constituting, respectively, a definite extension from January 3, 1934, to July 19, 1940.

The respondent relies on such cases as Woollomes v. Gomes, 26 Cal.App.2d 461, 79 A.2d 728; California State Bank v. Webber, 110 Cal. 538, 42 P. 1066; Trinity County Bank v. Haas, 151 Cal. 553, 91 P. 385; and Stalder v. Riverside Groves, etc., Water Co., 167 Cal. 560, 140 P. 252, in which, generally speaking, it was held that from the form of the document in question, in each case, it could not be said that it was within the contemplation of the parties that the time of payment should be indefinitely postponed. While these cases are distinguishable in certain particulars from the one now before us, the principles behind those cases are more nearly applicable here than are those found applicable in Hasman v. Canman. We think the language used in the note here in question, taken in its entirety, does not indicate an intention to provide for an automatic and indefinite extension of the time of payment or for one indefinitely existing only in the mind of the holder. It clearly provides that any such extension may be from time to time, which indicates a definite extension for a particular time and not one arising from the fact that the holder may later simply assume that an extension has previously been granted. Whether or not any notice was necessary some act on the part of the holder was required and one that would make a definite extension to a specific date. There is an entire lack of evidence as to any such affirmative act and the allegation of the complaint to which we have referred was not sustained by proof.

The judgment is affirmed. The respondent's motion to abate the proceedings is denied.

BARNARD, Presiding Justice.

MARKS and GRIFFIN, JJ., concur.