decided: November 9, 1891.
MOLINE PLOW COMPANY
ERROR TO THE CIRCUIT COURT OF THE UNITED STATES FOR THE WESTERN DISTRICT OF TEXAS.
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MR. JUSTICE HARLAN, after stating the case, delivered the opinion of the court.
Although the record recites that the case was heard upon the pleadings and evidence, it does not appear that any oral testimony was introduced. No bill of exceptions was signed, and the finding by the court was general, stating only its conclusions of law. The defendant, therefore, contends that there is nothing before this court for review.
This position cannot be sustained. The notes, upon which the action is based, and the deed of trust filed with and made
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a part of the supplemental petition -- their execution not having been denied by the defendants under oath -- are to be taken, without proof, as genuine instruments notwithstanding the general denial in the original answer of all and singular the allegations of the petition. 1 Sayles's Texas Civil Statutes, Art. 1265, and authorities cited in 2 Peticolas's Index-Digest of Texas Civil Cases, p. 1024. We have seen that the notes matured, respectively, on the first days of November, 1885, 1886 and 1887. As this action was brought within less than four years after November 1, 1885, the defence of limitation -- although it was stipulated in each note that on default in the payment of interest at maturity the principal was to become due and collectible -- is without foundation as to any of the notes, unless the principal of each note became due, without regard to the wishes of the payee or holder, either immediately upon default in paying interest, or after the expiration of ninety days from such default. Whether that view be sound or not depends upon the terms of the note and the deed of trust, and could not be affected by the testimony of witnesses. In refusing judgment for the entire amount of the notes, less the admitted credits, the court below necessarily proceeded on the ground that, independently of any option upon the part of the plaintiff, the notes became absolutely due and collectible at one or the other of the dates just mentioned, and consequently the action on them was barred. If this is error, it is one apparent on the record, and need not have been presented by a bill of exceptions. Balt. & Potomac Railroad v. Trustees 6th Presby. Church, 91 U.S. 127; Bennett v. Butterworth, 11 How. 669, 675; Young v. Martin, 8 Wall. 354, 357; Clinton v. Missouri Pacific Railway, 122 U.S. 469, 474.
We are of the opinion that the court erred in not rendering judgment for the full amount of the notes, less the sums admitted in the petition to have been paid. Walling v. Wheeler, 39 Texas, 480, is cited by the defendants in support of the opposite view. But that case only announces the general rule that limitation begins to run from the time the plaintiff could sue.
A leading case in the Supreme Court of Texas on this subject
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is Harrison Machine Works v. Reigor, 64 Texas, 89. That was an action upon promissory notes, payable at different dates, each containing an agreement to the effect that "a failure to pay that note when due should mature both notes." The note first falling due was not paid at maturity, and more than four years elapsed without suit. The question was presented whether limitation on the note last falling due commenced upon default in the payment of the one first maturing. It was held that it did, the court saying: "That the effect of the agreement was to authorize suit or give a right of action upon the last note at the same time that it could be commenced upon the first cannot be doubted. By the express terms of our statute of limitation it commences to run from the time when the cause of action accrues. It is immaterial from what cause a note becomes due so far as the right of the holder to enforce it by suit is concerned. . . . If the holder of a note may, at his option, treat the claim as due at a later date than the maker has agreed that it shall mature, and thus prescribe a different date at which it shall be barred, the evidence for its enforcement may be preserved, whilst that for its resistance may be destroyed, and thus the purpose of the statute be wholly defeated." After referring to Hemp v. Garland, 4 Q.B. 519, as sustaining that view, but recognizing the fact that that case had been somewhat criticized on the ground that the facts brought it within the principle that no one is bound to take advantage of a forfeiture, Wood on Limitations, 296, the court proceeds: "Admitting this to be a correct view, it cannot affect the present case. Here no option was left to the creditor; he was forced to treat the debt as due. It is true he was not obliged to bring suit upon it upon default in payment of the first note; neither is any creditor compelled to sue upon a claim so soon as it becomes due. But the statute was put in motion without consulting his wishes, by the very terms of the contract, which neither party had any right to change without the consent of the other. When suit is left to the option of the creditor, and he fails to bring his action for the whole debt upon the non-payment of one instalment, the debtor may possibly be authorized to construe this as an exercise
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of option in favor of postponing the maturity of the unpaid installments. He may be justified in supposing that if he had incurred a forfeiture, the creditor had elected not to take any advantage of it, and may be chargeable with knowledge that limitation would be computed accordingly. But if the creditor cannot postpone the maturity of the debt, and hence cannot waive the forfeiture, if such it can be termed, the debtor cannot, of course, be charged with notice that he has done so."
Accepting this decision as giving the rule to be observed in the interpretation of the local statute, it remains to inquire whether, upon the mere default in payment of interest, or upon such default continuing for ninety days, limitation began to run, without regard to any option upon the part of the payee or the holder of the notes. In determining whether the payee or the holder of the notes was compelled to treat them as due and collectible upon such default, we are to look at the deed of trust, and treat it and the notes as one instrument, or as contemporaneous agreements relating to the same subject matter. The deed refers to the notes, and is itself referred to in each note, and may be examined to ascertain the real intention of the parties. Looking alone at the first clause of the notes, there would be some ground, under the case last cited, for holding, with respect to each note, that it would become due and collectible, without regard to the wishes of the holder, immediately upon default in paying interest. But this could not have been intended, because the deed of trust, referring to the several notes, provides for the whole debt, as well as the interest, becoming due and payable, if at any time the interest shall remain unpaid, after maturity, for as much as ninety days. We think, however, that the words in the deed of trust, "at the option of said third party," the payee or holder of the notes, refer not only to a foreclosure, but equally to the clauses in the notes and in the deed of trust relating to the maturity of the principal, in the case of a default in the payment of interest. In other words, the principal, in either of the contingencies named, might become due and payable in advance of the time specifically named in
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the respective notes, at the option of the payee or holder. If this be not the correct interpretation, it would follow that the payee or holder of the notes, notwithstanding the words "at the option of said third party," -- which words are admitted to have given an option, at least, as to the foreclosure of the deed of trust -- would be compelled to bring his suit for foreclosure within four years from default in the payment of interest at maturity, or at least within four years after the expiration of ninety days from such default. We say this, because it was the law of Texas, when the notes in suit were executed, that if the debt secured by a mortgage or deed of trust was barred, the creditor was without remedy by foreclosure. Ewell v. Daggs, 108 U.S. 143, 147; Eborn v. Cannon's Adm'r, 32 Texas, 231; Blackwell v. Barnett, 52 Texas, 326. Subsequent decisions, it is true, may have modified this doctrine, but only to the extent of holding that, although an action for the debt may be barred by limitation, a court of equity, the debt being unpaid, will not enjoin a trustee from executing a power of sale given in the deed securing the debt, Goldfrank, Frank & Co. v. Young, 64 Texas, 432; and that a sale by the trustee, under such a power, after the debt is barred by limitation, will pass a good title free from the lien of a subsequent purchaser who has notice of the incumbrance. Fievel v. Zuber, 67 Texas, 275, 278. In our judgment, the parties intended to give the holder of the notes an option after default in the payment of interest, not only to declare the principal due, but to foreclose the deed of trust, in advance of the dates of maturity named in the notes and deed. That option not having been exercised when or after the several defaults occurred, limitation began to run on the several notes only from their respective dates of maturity, as specified in them, namely, the first days of November, 1885, 1886 and 1887.
It results that plaintiff was entitled to judgment as claimed in his original petition. In view of this conclusion, it is unnecessary to consider whether the defendants made any acknowledgment or promise which, under the statute of Texas, as construed by the Supreme Court of that State, (Gathright v.
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Wheat, 70 Texas, 740; Krueger v. Krueger, 76 Texas, 178,) would remove the bar of limitation, if we should assume that limitation began to run from default in paying interest, or upon the expiration of ninety days after such default.
The judgment is reversed, and the cause remanded with directions to grant a new trial, and for further proceedings consistent with this opinion.
MR. JUSTICE BREWER concurs in the judgment.
MR. JUSTICE GRAY did not take part in the decision of the case.
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