
    Pahner et al. v. Leckie.
    (Decided November 2, 1931.)
    
      Mr. Don P. Mills, for plaintiffs in error.
    
      Mr. G. N. Discus, for defendant in error.
   Vickery, J.

This action comes into this court on a petition in error to the common pleas court of Cuyahoga county, the purpose being to reverse a verdict and judgment thereon in the sum of $2,592 in favor of John T. Leckie, who was plaintiff below and is defendant in error here, against the plaintiffs in error; Arthur W. Pahner and others, who were defendants below.

We have familiarized ourselves with the record, heard the arguments of counsel and read the briefs, and from all of these sources we learn that the plaintiffs in error are a partnership engaged in the erection of buildings, and so forth; that the defendant in error is a dealer in cut stone, and for many years had a series of transactions with the plaintiffs in error, the defendants below; that on December 19, 1927, plaintiffs in error were indebted to the defendant in error in the snm of $2,590.40, as was determined by going over and balancing up accounts; that it was agreed by both parties that this amount was due, in other words, that it was an account stated; and that on that day a settlement was made.

The defendants below held a note and mortgage in the sum of $2,370 against a man by the name of Johnson, and endorsed said note and assigned the mortgage securing the note on the property of this man Johnson to Leckie, the plaintiff below, the defendant in error here, and at the same time gave him their check for $193.40, and the account was thereupon squared up to all intents and purposes. The assignment is in writing and is before the court, and it assigns and transfers to Leckie the note and mortgage. There is no reservation in writing, or anything of the kind in the assignment, or in the transfer.

Subsequently Leckie proceeded to collect the payments that were due from Johnson, as provided in the mortgage, and collected five payments of $40 each. At the end of the next year, to wit, 1928, the dealings that had gone on between the date of settlement 1927 and 1928 were again adjusted by an agreement which resulted in an account stated, which sum was taken care of and paid by notes and other obligations, and that settlement is not in question here, nor in that settlement was any balance claimed to be due on the 1927 adjustment, nor was there any intimation that the account of 1927 had' not been adjusted and taken care of.

Subsequently the party who held the first mortgage upon Johnson’s property brought a suit to foreclose the mortgage, and he made the partnership, plaintiffs in error here, parties to the suit, inasmuch as the assignment of the mortgage had not been entered upon the record. They thereupon notified Leckie of the foreclosure suit, who, I believe, then tendered back the mortgage and note, which were refused, and Leckie rightfully, in order to preserve the lien, filed an answer and cross-petition, setting up the mortgage and amount due upon it, and in due time a judgment was entered in his favor for the amount of the note and an order issued foreclosing the mortgage.

The property, however, when sold, did not bring enough to pay the first mortgage, so that nothing was paid upon the second mortgage. Whereupon the plaintiff below, Leckie, brought this suit to recover the amount which he claimed to be due on the settlement of 1927, crediting the five payments of $40 each and the check for $193.40 that was given in December, 1927, when the account stated was agreed upon, and asked for judgment for the balance, alleging that it was an account stated and that only so much had been paid.

To this petition an answer was filed which admitted that there was an account stated, but alleged that the whole amount had been paid. The plaintiff then filed a reply, denying that the amount had been paid, and reiterated the amount set up in the petition and again asked for judgment.

The case was tried and evidence introduced which showed that in December, 1927, when this account stated was agreed to, the partnership transferred to Leclde this note and mortgage of Johnson and assigned the mortgage to him, as already stated. This was not disputed, and it was admitted that this note and mortgage were transferred to Leckie, and it was admitted that it was the obligation of a third person. It is claimed, however, by Leckie, that this note of Johnson was taken as security only, and not as payment, and here, it seems, arises the difficulty. It appears that his honor, the learned judge, and perhaps counsel, misunderstood the law in such cases. There cannot be any question that when an account stated is admitted it absolves the plaintiff from proving his account; nor can it be doubted that when a defendant admits the account and pleads payment the burden is upon him to prove payment. Nor can it be said that the “burden shifts” from one to the other; but the burden of procedure may shift repeatedly.

The mistake that all seem to have made is in the legal effect of payment of a debt by the obligation of a third person. From the charge of his honor, one could only conclude that he had lost sight of the proposition. 1 think there is nothing better settled in the law of contracts than that where a debt or obligation is sought to be canceled by payment not in cash, but by a note of a third person endorsed in blank or assigned, acceptance thereof operates as a payment and a' cancellation of the obligation, unless there is an agreement that it shall be taken only as collateral.

Now, as already stated, the transfer of this Johnson note was a transfer of the obligation of a third person, and the endorsing and transferring of that note to Leckie was a complete and absolute payment, unless it was agreed at the time that the note should be taken by him only as collateral or security and the original debt should remain intact. Now here is where all parties seem to have gone wrong. Of course, the burden of proving payment is upon the man who pleads payment, in this case the plaintiff in error, the partnership; but when it had proven that a note of a third person was taken such acceptance operated as payment as a matter of law unless it was agreed that it should not be taken as payment, but only as collateral; and it did not fall upon the defendants to prove a negative. All they had to do was to prove the turning over of this note and mortgage, securing it to this party; and this transfer, which is in the record, shows without any qualification that that was done.

Now, then, as a matter of law, that operated as a payment and a complete discharge, it being the obligation of a third person and not of the debtor himself ; for in such a case if he gave his own note the presumption would be that it was a conditional payment, but it may just as authoritatively be stated that when a third person’s note is given the debt is wiped out, unless, as already set forth, there is an agreement to the contrary. Inasmuch as the defendants did not have to prove a negative, after they had proven what in law would be a good payment, the burden of procedure would then shift over to the plaintiff, and he would have to show by a preponderance of the evidence that this note and mortgage were not taken as payment, but as security or collateral only.

The court seemed in his charge to utterly confuse the issues in this lawsuit. He said, of course, the burden of proving payment was upon the defendants, which is true; but here the defendants had proven payment, for there is no dispute of the fact of their turning over the note of a third person. The fact is that the same day the balance between the account stated and the amount of the note of the third person was figured, amounting to $193.40, the plaintiffs in error gave a check for so much, and the note and mortgage were taken, and the payments upon the note were collected; and, as already stated, when the next settlement came the next year nothing was said about anything being due on this old account stated.

The plaintiff had to prove by a preponderance of the evidence that this note and mortgage were taken by him as collateral security only and not as payment, and that the original claim remained intact, and when counsel for the defendants below asked the court to charge this proposition of law the refusal of the court so to do was erroneous. To illustrate: When the defendants pleaded an account stated, and pleaded payment, and introduced evidence showing that this note and mortgage of a third party were transferred to Leekie, they could safely have rested, and did rest, for the law took care of the matter. So it necessitated evidence on the part of the plaintiff to show under what conditions he took this note and mortgage of Johnson. If that was not done, the court’s duty was to direct a verdict in favor of the defendants, because the case made by the plaintiff was completely met at the conclusion of the defendants’ testimony. So the issue really was brought out in the reply, and the testimony of the plaintiff must prove that the acceptance by him of the note and mortgage of Johnson was not in any way to obliterate and discharge the debt, but that those instruments were taken simply as collateral security thereto.

The court spent considerable learning on defining what a contract is, and what payment is, but he neglected entirely to tell the jury what the law is after the defendant has proven the assignment of the note and mortgage of a third person.

We think it was the duty of the court to instruct the jury that the burden of proving that this note and mortgage were not taken as payment was upon the man who made such claim, and that was the only issue in the case; and we further think that the court wrongfully charged that that duty was upon the defendants; and for these reasons we think this verdict and judgment were erroneous and must be reversed and the cause remanded to the common pleas court for a new trial on the ground that the court erred in charging the jury, and erred in refusing to charge as requested that the burden of the only issue that there was in the case was upon the plaintiff, who could only recover by sustaining that burden, to wit, by showing that this note and mortgage were not taken as payment, but only as collateral security. That not having been done, but having been refused by the court, the judgment is reversed and the cause remanded.

Judgment reversed and cause remanded.

Levine, P. J., and Weygandt, J., concur.  