Opinion
No. 3751.
November 22, 1929. Rehearing Denied November 28, 1929.
Appeal from District Court, Dallas County; T. A. Work, Judge.
Action by J. A. White against John M. Spellman. Judgment for plaintiff, and defendant appeals. Affirmed.
See, also, 298 S.W. 312.
The suit is by the appellee upon the following promissory note executed and delivered by the appellant, namely:
"$2,000.00 Dallas, Texas, Oct. 15, 1921.
"Six months after date, without grace, I, we, or either of us, promise to pay to the order of J. A. White Two Thousand Dollars with interest at the rate of ten per cent. per annum from maturity until paid, for value received.
"And further promise, if this note is placed in the hands of an attorney for collection, to pay ten per cent. additional on the full amount due for attorney's fees.
"We hereby severally waive presentment for payment, notice of non-payment, protest and notice of protest, and diligence in bringing suit against any party hereto, and each party signing or endorsing this note consents that time of payment may be extended without notice.
"Payable at the office of the Central State Bank, Dallas, Texas.
"[Signed] John M. Spellman."
Indorsed on back as follows: "J. A. White." Also: "Pay any Bank or Banker. First National Bank, Sioux City, Iowa, O. D. Pickett, Cashier. Apr. 18, 1922. Collection Department."
The consideration for the note was the one-fifth undivided interest in a patent acquired by the plaintiff from the patentee. The defense was that (1) there was a failure of consideration, in that the assignment from the patentee to the plaintiff was merely an executory, nonassignable contract, and passed no right which the plaintiff could assign to the defendant; and (2) the note did not state on its face the words, "given for a patent right," as required by the penal laws of the state.
F. E. Modlin, of Fort Worth, Tex., and the appellee executed the following written agreement:
"Articles of Agreement."This Memorandum of Agreement, made and entered into in duplicate this Seventh day of March, 1918, by and between F. E. Modlin, of Fort Worth, Texas, Party of the First part, and J. A. White of Sioux City, Iowa, Party of the Second part, witnesseth:
"The Party of the First part, for and in consideration of the sum of One Dollar and other valuable considerations to him in hand paid and to be paid, has sold, assigned and sets over to the Party of the Second part an undivided one-fifth interest in what is known as the Modlin Jr. Super Heater Gas Producer and all patents which are applied for in the United States Patent office.
"Mr. White is to receive his interest in the Machine that is finished and is to receive a one-fifth of all profits, royalties or profits derived in any way from said invention or any improvements or attachments that are made in the future. He is also to be consulted on any business transaction before any action is taken.
"Party of the Second part is to take an active part in the management and work in the said business as soon as the proposition is advanced to a paying basis. These Articles of Agreement will be subject to modifications at any time deemed necessary, both parties concurring.
"In testimony whereof the said parties have hereunto set their hands the day and year above mentioned.
"F. E. Modlin, Party of First part.
"J. A. White, Party of Second part."
The evidence does not disclose whether or not a manufacturing plant was being operated in Texas or elsewhere by the parties, nor that they had formed a company or partnership to engage in the manufacture and sale of the patented machine. It seems that at the time of the above assignment the patent had been applied for, but was not granted until about February 25, 1919. The appellee was in the railway mail service of the United States, and resided in Sioux City, Iowa. The appellant resided in Dallas, Texas. The appellant wrote the following letter:
"October 10, 1921.
"Mr. J. A. White, 1911 Pierce St., Sioux City, Iowa. Dear Sir: Your letter October 5th received. Please advise me if you will accept $500.00 cash and a note for two thousand dollars payable in six months or a year for your one-fifth interest. I have made practically the same offer to Mr. Modlin. It is satisfactory to Mr. Braxton. We will have to make some kind of a deal with Mr. Rittersbacher to get his money back. I am trying to help Mr. Braxton and Mr. Rittersbacher settle this matter up. I don't believe you could get any better offer.
"Please let me hear from you.
"Very truly,
[Signed] John M. Spellman."
The appellee replied to the letter as follows:
"Sioux City, Iowa, October 12th, 1921.
"Mr. John M. Spellman, Dallas, Texas. Dear Sir: I have your letter of the 10 and wish to advise that I will sell for the price offered on the following conditions. $500.00 cash, a note for $2000.00. I would prefer to have this payable in three months from October 20th if possible, but would accept it at six months if necessary and the others are doing likewise.
"If this is satisfactory send a draft for $500.00 to Mr. O. A. Petit, Cashier of the First Nat. Bank, together with the note and assignment of my interest in the patent with instructions for the Bank to hold both the note and assignment until the note is paid.
"It is understood by me that this relieves me of all obligation and Attorney fees in lawsuits over this patent.
"Yours truly, J. A. White."
Appellant wrote the following letter:
"October 15, 1921.
"Mr. O. A. Petit, Cashier, First National Bank, Sioux City, Iowa. Dear Sir: Please find enclosed check for $500.00 payable to Mr. J. A. White, also my note for $2000.00 payable to Mr. White in six months. This check and note are in payment for his one-fifth interest in the Modlin patent for gas production and improvements. Please deliver this check and note to Mr. White and after he has executed the assignment and given it to you please return it to me. I sent you a copy of my letter to Mr. White which explains why the assignment should be returned to me. I am also sending copy of my letter to you to Mr. White. I will appreciate your prompt attention to this matter since I am working on it trying to get the proposition started.
"Thanking you in advance for your courteous attention to the matter, I remain,
"Yours truly,
[Signed] John M. Spellman."
Appellee replied as follows:
"Sioux City, Iowa, Oct. 21st, 1921.
"Mr. John M. Spellman, Dallas, Texas. Dear Sir: I wish to advise of the receipt of your letter with enclosed copy of letter to First National Bank. I went down Monday night and made acknowledgment of the Patent assignment and presume the bank has returned it to you by this time.
"I trust that you will be successful in getting this on the market as it seems to be too good a thing to let lie idle.
"Yours truly,
"J. A. White, 1911 Pierce St."
The following instrument was executed by appellant and appellee:
"Whereas, J. A. White, of Sioux City, Iowa, did acquire by a certain deed of assignment from Frank E. Modlin an undivided one-fifth part in and to Letters Patent of the United States No. 1,295,188 granted to him February 25, 1919, for Machine for Making Gas; and whereas John M. Spellman of Dallas, Dallas County, Texas, is desirous of acquiring an interest therein:
"Now, therefore, for and in consideration of $2500.00, payable as follows: $500.00 cash the receipt of which is hereby acknowledged, and one note for $2000.00 payable six months from date, I, the said J. A. White, do by these presents sell, grant and convey unto the said John M. Spellman my said above one-fifth interest in said patent, together with all improvements and inventions thereon which I now own and which I may hereafter be interested in either directly or indirectly, the same to be held by the said John M. Spellman for his interest and for the sole use and behoof of the said Spellman and his legal representatives.
"Witness my hand this the _____ day of October, 1921.
"J. A. White."
These are substantialy the facts relied on in the trial of the case.
There was a trial before the court without a jury, and judgment was entered for the plaintiff for the amount of the note, interest, and attorney's fees.
Olin E. Nesmith, of Dallas, for appellant.
Winfrey Lane, of Dallas, for appellee.
The appellant insists that the suit should have been abated because the note upon which the right of action was sought to be founded cannot form the basis of any enforceable right, as there was omission to state upon the face of the note the words, "given for a patent right." The Acts of 1915, c. 76, p. 128, provided that:
"Section 1. That all notes and liens given for a patent right consideration or patent right territory shall state on their face that the same were given for a patent right.
"Sec. 2. The aforesaid statement on the face of said notes or liens shall be notice to all subsequent purchasers of said notes or liens of all equities existing between the parties to the original transaction, and the same shall be subject to all defenses against subsequent owners and holders, that they would if the same had remained in the hands of the original owner.
"See. 3. If anyone selling a patent or patent right territory shall take a note or lien for the purchase price of the same, contrary to the provisions of this Act, he shall be deemed guilty of a misdemeanor, and on conviction fined any sum not less than twenty-five nor more than two hundred dollars.
"Sec. 4. The absence of a sufficient law in this State to protect the public from patent right frauds, creates an emergency and an imperative public necessity that the constitutional rule requiring bills to be read on three several days be suspended, and that this Act take effect from and after its passage, and it is so enacted."
Sections 1 and 3 of the act were carried into article 1130, Penal Code, of the Revised Criminal Statutes of 1925. As the question presented by appellant has arisen in cases in the courts of other states under statutes of like object, the decisions of the courts may be referred to in illustration of the construction of such statutes. The decisions agree that the note will not afford the basis of a recovery thereupon where the statute in direct terms declares the note shall be "void" unless the statutory words appear on its face. Wyatt v. Wallace, 67 Ark. 575, 55 S.W. 1105; Ensign v. Coffelt, 102 Ark. 568, 145 S.W. 231, and other cases. As will be observed, such character of statutes contain both the penal provision, which punishes the original taker of the note, and the separate provision operating directly upon the note, making it "void" unless the statutory words appear on its face. As declared in the cases, the note being expressly made void by the act at its inception, in legal effect it would be void in the hands of every holder, although he be the original payee, and the maker of the note could set up such remedial part of the statute. These decisions would not be applicable to the statute of this state, since the statute does not, as will be observed, in direct terms declare the note shall be void unless the statutory words appear on its face. In some of the other eases the view is taken that, although the particular statute considered does not expressly declare the note "void" for noncompliance, yet, by imposing a criminal penalty upon the taker of the note, there is conclusively implied the intention to make void and unenforceable in the courts the note so taken in contravention of the statute. Bank v. Rowe, 36 S.D. 151, 153 N.W. 939; Sandage v. Mfg. Co., 142 Ind. 148, 41 N.E. 380, 34 L.R.A. 363, 51 Am.St.Rep. 165; Mason v. McLeod, 57 Kan. 105, 45 P. 76, 41 L.R.A. 548, 57 Am.St.Rep. 327; Pinney v. Bank, 68 Kan. 223, 75 P. 119. In truth, the principle of public policy lies at the base of the ruling in these cases. The ruling, in effect, was that the note taken in contravention of the statute was opposed to the general policy and intent of the statutory law being considered, and therefore such note was necessarily void and unenforceable in the courts. But the current of authority agrees that the test adopted in such cases may not invariably be employed as pointing to the true construction of the statute. 2 Elliott on Contracts, § 667; 1 Page on Contracts, § 332. Quoting from section 667, Elliott on Contracts: "The interposition of a penalty does not necessarily and invariably render every contract in contravention of the statute void and unenforceable in the courts. As to whether all contracts are void is one of legislative intent. The purpose and intention of the legislature will control. If from the subject-matter of the statute, the language used and the purpose sought to be accomplished by its enactment it appears that the statute was not intended to imply a prohibition, courts will construe the statute accordingly."
In the case of Herdic v. Roessler, 109 N.Y. 127, 16 N.E. 198, there was involved a statute quite similar to the Texas statute, and the court determined that in "the true construction of the statute" the "statute does not make the note illegal, although the statutory words are omitted." The courts of this state too have similarly determined that the remedy of action is not to be denied unless the statute necessarily intended a prohibition. Thompson v. Samuels (Tex.Sup.) 14 S.W. 143; Oil Co. v. Drilling Co., 115 Tex. 149, 277 S.W. 1036; Hennessy v. Auto Ass'n (Tex.Com.App.) 282 S.W. 791, 46 A.L.R. 521; Bank v. Ins. Co., 116 Tex. 132, 287 S.W. 50. In this view it is thought the statute of this state as it existed when the present note was taken may not be construed as intending to make "void" and prohibit the enforcement of the note unless the statutory words appeared on its face. Section 2 very definitely points to the purpose and object of having the statutory words stated in the note. Such words, as the nature of the consideration, were to charge the purchaser with "notice" of possible fraud or failure of consideration in order to "subject" the note "to all defenses against subsequent owners and holders" just as "if the same had remained in the hands of the original owner." It does not intend to take from a bona fide transferee for value before maturity, without notice of the consideration, the protection accorded to negotiable instruments. The presence or absence of the statutory words in the note was not intended to affect the validity of the note. Section 6 of Rev.St. art. 5932 (Neg. Instruments Law); 4 Elliott on Contracts, § 3384. In the third section of the act, the seller of the patent is made amenable to punishment simply for taking the note without stating therein the nature of the consideration. As between the original payee and the maker of the note, it was not legally necessary to insert the statutory words in the note in order to make available the defense of fraudulent representations or failure of consideration. 1 Daniel on Neg. Instr. § 769. The presence or omission in the note of the statutory words would in no wise enlarge or lessen the defense of the maker, in the suit by the original payee or a holder with notice.
The second point presented by appellant is, in effect, that the plaintiff had nothing which he could sell or assign to the defendant, as the instrument between F. E. Modlin and J. A. White was a nonassignable contract. The point is predicated upon the ground that J. A. White was to take active part in the management of the business, and was to be consulted in any business transaction. By the instrument in evidence two things are intended to be accomplished, namely: (1) F. E. Modlin to assign and vest absolute title in J. A. White of an undivided one-fifth interest in the patent; and (2) to create between the parties the relationship of partners. In this view there is no legal objection to the assignment by J. A. White of his rights as a joint owner and partner.
It is believed the trial court has correctly decided the questions involved in the case, and that the judgment should be affirmed.