Calabrese v. Rexall Drug & Chemical Co.

notes for them. On June 30, 1961, he wrote to Owl requesting delivery of the notes. Defendant, through its attorney, demanded evidence of Klinger’s authority to act and for whom. This he supplied in .a letter of July 25, which also contained these passages: “Further to answer your letter, although the information requested does not appear material, said assignees were informed orally at the Pasadena store when they signed the trust deeds and turned over the documents of security, that the notes which were being assigned to them would be sent to them. I believe they were informed of this by Mr. Fisher and Mr. Clemonson. In any event, the assignment of June 5, 1961 of said promissory notes is unconditional, the assignment has been delivered to the assignees and the property assigned should, therefore, be transmitted to me as their authorized representative. I think you will agree that whenever any property is assigned by a document of assignment, the property itself must then be delivered to the named assignees. I would therefore appreciate your forwarding said promissory notes to me promptly.” Klinger reiterated this request on July 28th and was told by letter of August 30th from Owl’s attorney that the notes had been stolen and could not be delivered: “In response to your letter of July 28, 1961, please be advised that the following original Promissory Notes, together with the safe in which they were deposited, were feloniously removed from the possession of The Owl Drug Co. sometime between the evening of April 21, 3961, and the morning of April 24, 1961.” Defendant at pretrial contended that “Defendant was not required to endorse or deliver to plaintiffs the aforesaid Notes” and thereafter insisted upon this contention.

Owl continued to hold the securities which plaintiffs had delivered with their $169,370 note, and Owl wrote Sam’s creditors that he owed it $250,000 and that it was looking to the notes as security for the same. Pursuant to demand of defendant, Title Insurance and Trust Company, as trustee, commenced foreclosure through public sale of “the real property deeded to it as security for said note” of $169,370, which said foreclosure proceeding was under way at the time of commencement of the instant action on October 6, 1961.

On August 26, 1961, two of the drug store operating corporations made assignments for the benefit of creditors, and defendant on August 30th, four days later, asserted for the first time that it could not deliver the notes because they had been stolen.

objection to be voiced at the trial, has been abrogated in this state through the decision in Pao Ch’en Lee v. Gregorian, 50 Cal.2d 502 , 506 [ 326 P.2d 135 ], wherein it is said: “[T]he admission of parol evidence to vary or add to a written instrument cannot be objected to for the first time in the appellate court [citations]. Any statements in Lifton v. Harshman, 80 Cal.App.2d 422 [ 182 P.2d 222 ], to the contrary are disapproved.” The reference to the Lifton opinion undoubtedly points to the following at page 432 of 80 Cal.App.2d: “The parol evidence rule is not a rule of evidence, but is one of substantive law. [Citations.] Such evidence, though admitted without objection, must be ignored as of no legal import and its incompetency to vary a written contract is a matter of law. ’ ’

The parol evidence was conflicting; the trial judge resolved the dispute in favor of plaintiffs, finding to be true the allegation of the complaint that defendant agreed to “sell, assign, deliver and transfer to the plaintiffs” the six notes. In that connection it is interesting to note that a draft of the contract dated February 1961 and introduced in evidence by defendant, uses in paragraph 1 the same words as the final form—“agrees to sell, transfer and assign,” while paragraph 10 (a) says: “Owl will deliver to the Purchasers the Notes, together with appropriate instruments assigning and transferring any and all interest of Owl on such date in the Notes to the Purchasers in conformity with the terms, provisions and disclaimers of liability set forth in this Agreement.” This expression of an obligation to make delivery of the notes was carried into paragraph 10 of the final agreement in different form but with no change in meaning. In fact, these words appear in handwriting in the typed copy of the agreement attached to the complaint and the court found it to be “a true and correct copy of the written contract.” Thus the parties disclosed a continuing intent that ■ the notes be delivered to plaintiffs as an incident to their purchase of same.

The parol evidence also shows that Sam Calabrese was in financial difficulty with his insistent creditor, Owl Drug Co., that he agreed to have his sons and other relatives buy the six notes at par through giving their secured note as con

While paragraph 1 of the agreement does not use the word “deliver” it carries that connotation. Civil Code, § 1655: “Stipulations which are necessary to make a contract reasonable, or conformable to usage, are implied, in respect to matters concerning which the contract manifests no contrary intention.” These were negotiable notes (Civ. Code, § 3265; 8 Cal.Jur.2d § 15, p. 347), payable to order. The transfer to another constitutes negotiation (Civ. Code, § 3111), and where, as here, the note is payable to order “it is negotiated by the indorsement of the holder completed by delivery. ’ ’ (Id.)

Harber v. Lincoln, 175 Okla. 221 [ 51 P.2d 967 ] (syllabus by the court): “2. Delivery of a negotiable instrument is an essential, integral part of the transaction of negotiation of such instrument; i.e., delivery is essential to a complete legal transfer of ownership thereof. ’ ’

10 Corpus Juris Secundum section 202, page 689: “Delivery of a negotiable instrument is generally essential to its complete legal transfer. Negotiable Instruments Act § 30 provides that if an instrument is payable to order it is negotiated by the indorsement of the holder completed by delivery. Delivery of the instrument forms part of the contract of indorsement, as well as of transfer by assignment, and it is essential in general to its complete legal transfer. It is not necessary, however, that indorsement and delivery should be simultaneous, although the transfer will take effect only after indorsement and delivery. ...” Id., section 210, page 696: “An agreement to transfer a note is prima facie an agreement for its transfer by indorsement, but such an agreement does not of itself amount to a transfer of the legal title.”

Moreover, section 3130, Civil Code, provides: “Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires, in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of time when the indorsement is actually made. ’ ’ (Italics added.)

See also, 87 American Law Reports at page 1179.

Without any doubt the contracting parties intended and expressed their intention that the six notes be delivered to plaintiffs, the buyers, and the law imposed that duty upon them in the absence of a clear expression of a contrary

intention. Indeed, defendant’s vice president Clemenson testified: “It was our intention to hand them the notes when the securities had been checked out and completely verified that the amount being put up was that value. Q. Yes, but you intended ultimately to déliver them and hand them over to them when that had been done, didn’t you? A. Yes."

Ordinarily an indorsement without recourse (a qualified indorsement) implies certain warranties specified in section 3146, Civil Code. “Bach person who negotiates an instrument by delivery or by a qualified indorsement warrants that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless." (8 Cal.Jur.2d § 98, p. 425.) But such warranties are not implied in the indorsement where made pursuant to an agreement which provides otherwise. (Eisenman v. Vernell (Fla.) 114 So.2d 16 , 17-18; In re Canal Bank & Trust Co., 221 La. 184 [ 59 So.2d 115 , 118]; General Contract Purchase Corp. v. Alcorn, 226 Mo. App. 1026 [ 47 S.W.2d 162 , 163-164]; Carroll v. Nodine, 41 Ore. 412 [ 69 P. 51 , 93 Am.St.Rep. 743 ]; Davis v. Brown, 94 U.S. 423 , 427 [ 24 L.Ed. 204 ]; Title Ins. & T. Co. v. Bandini Estate Co., 26 Cal.App.2d 157 , 162 [ 79 P.2d 141 ]; Home State Bank of Russell, Kan. v. Milberger, 146 Kan. 541 [ 72 P.2d 1004 ]; 10 C.J.S. § 237, p. 730.) That is the case before us.

Appellant argues, however, that it was impossible for it to make delivery because the notes were stolen on or within three days after April 21, 1961, which was the day of completion of delivery to defendant of consideration due from plaintiffs. The answer contains no such defense. “Impossibility of performance is a defense and the burden of proof in establishing it rests on defendant." (Oosten v. Hay Haulers etc. Union, 45 Cal.2d 784 , 788 [ 291 P.2d 17 ].) Assuming that the issue was properly raised at pretrial and the pleading thus indirectly amended, there was no evidence upon the subject of the alleged theft of the notes except that of defendant’s witnesses whom the trial judge disbelieved, as he had a right to do (Nevarov v. Caldwell, 161 Cal.App.2d 762 , 777 [ 327 P.2d 111 ]; La Jolla Casa de Manana v. Hopkins, 98 Cal.App.2d 339 , 345-346 [ 219 P.2d 871 ]; People v. Matlock, 51 Cal.2d 682 , 695 [ 336 P.2d 505 , 71 A.L.R.2d 605 ]), and hence he was required to find against

defendant, the party having the burden of proof; he did find " [t] hat said notes were not stolen from The Owl Drug Co.” and that there was a wrongful refusal and failure to deliver same. “ Where no evidence, or insufficient evidence, is. introduced on an .issue, .the.finding on that ..issue should be against the party who has the burden of proof. A finding in his favor thereon cannot stand.” (48 Cal.Jur.2d § 290, p. 292.)

We hold that defendant was obligated to indorse without recourse and deliver to plaintiffs the six notes; that refusal and failure so to do worked failure of consideration for the March 1, 1961, agreement in a material respect and afforded'plaintiffs ground for rescission.

Appellant argues, however, that plaintiffs waived their right to rescind, if one they had. Waiver is an affirmative defense which must be alleged as such (Calhoun v. Davis, 121 Cal.App.2d 167 , 172 [ 262 P.2d 620 ]), and cannot be raised for the first time on appeal (Wood v. Jotham Bixby Co., 29 Cal.App.2d 294 , 299 [ 84 P.2d 204 ]). Respondents say: “The pretrial order did riot raise the question.” However, it does incorporate the joint pretrial statement of counsel which says that defendant Owl contended that one of the issues of law was: “5. Whether plaintiffs waived the right to rescind.” We do not pause to consider whether such assertion of a new issue at .pretrial, without express recognition by the court that it is an existing issue, operates to amend the parties’ pleading and make it an issue to be canvassed by the trial court. Though the trial judge made no express finding on the subject of waiver and was not requested so to do in defendants’ “Objections to Proposed Findings of Fact and Conclusions of Law and Request for Special Findings, ’ ’ he did find to be untrue the claimed essential facts .upon which appellant , relies to establish a waiver. Appellant advances no claim of error in failing to make a finding on the subject. The argument falls for lack of sufficient foundation.

Other points debated by counsel in their briefs, such as business frustration, require no separate discussion. They have been examined and the matters hereinbefore set forth fully dispose of the case.

Judgment affirmed.

Fox, P. J., and Herndon, J., concurred.