The reference in the notes to the contract destroyed the negotiability of the notes and permitted the makers to interpose any defense that might arise by reason of breaches of the contract by the payee. At any rate, evidence of such breaches was admissible. Elmore County Bank v. Avant, 189 Ala. 418,66 So. 509; Continental B. T. Co. v. Times Pub. Co.,142 La. 209, 76 So. 612, L.R.A. 1918B, 632; 8 C. J. 730; State Bank v. Cape Girardeau, etc., Co., 172 Mo. App. 662,155 S.W. 1111; Owen v. Moore, 14 Ala. 640; 1 Randolph on Com. Paper (2d Ed.) § 197; 3 R. C. L. 1024.
Baldwin Murphy, of Andalusia, for appellees.
The words "as per contract" on the face of the note did not render it nonnegotiable. Strand Am. Co. v. Fox, 205 Ala. 183,87 So. 332, 14 A.L.R. 1126; Bank of Sherman v. Apperson (C. C.) 4 F. 25; L.R.A. 1918B, 640; Siegel v. Chicago Trust Sav. Bank, 131 Ill. 569, 23 N.E. 417, 7 L.R.A. 537, 19 Am. St. Rep. 51; First Nat. Bank v. Lightner, 74 Kan. 736,88 P. 59, 8 L.R.A. (N.S.) 231, 118 Am. St. Rep. 353, 11 Ann. Cas. 596; Tyler v. Whitney Bank, 157 La. 249, 102 So. 325; 3 R. C. L. 918; 8 C. J. 124. The breach of an executory contract, the consideration for a note, is not a defense against an indorsee for value before maturity with notice of contract but not of its breach. U.S. Nat. Bank v. Floss, 38 Or. 72, 62 P. 751, 84 Am. St. Rep. 752; Weber v. Rosenheim, 37 Ill. App. 73; Fox v. Citizens' B. T. Co. (Tenn.) 37 S.W. 1102, 35 L.R.A. 681. The suit is on a series of promissory notes — by the indorsees against the makers.
The question of first moment is their negotiability vel non.
The form of the note is as follows:
"Purchase-Money Note. "$1500.00. Dated June 15, 1921.
"On September 1st, after date we promise to pay to the order of the Southern Pine Tar Oil Company, Savannah, Ga., the sum of fifteen hundred and no/100 dollars, with interest from date at the rate of 8 per cent. per annum, and all costs of collection, including 10 per cent. attorney's fees, at any bank in Savannah, Ga.
"This note is one of series of notes given Southern Pine Tar Oil Company covering balance of purchase price of retort plant as per contract between that corporation and the maker hereof, dated May 16, 1921."
Signed by makers.
By the written contract of May 16, 1921, the payee, with offices at Savannah, Ga., agreed to sell and the makers agreed to buy two portable retorts with equipments for the manufacture of pine oils, tar, and charcoal, the plant to be located at Rome, Ala.
The seller agreed to allow the use of its methods and processes of manufacture, and to teach the buyers how to operate. All the products of the plant were to be marketed through the seller's agency on a commission basis.
Another provision reads:
"Party of the second part to operate on full time, but if from any unforeseen cause the party of the second part is unable to so operate plant, the party of the first part agrees to renew above-mentioned notes for such reasonable time as may be agreed to."
As between the parties, the several instruments clearly constituted one contract.
The stipulation for renewal as per the above-quoted clause, if incorporated in the note, would destroy negotiability. The right of renewal on a contingency that may or may not happen necessarily renders the time of payment uncertain. A stipulation giving a general right of renewal for an indefinite time has the same effect. Code, § 9032; Anniston Loan Trust Co. v. Stickney, 108 Ala. 146, 19 So. 63, 31 L.R.A. 234; 3 R. C. L. p. 910, § 98.
The mere fact that a promissory note, possessing all the elements of negotiability as defined by law, is related to another instrument in such way that, in the contemplation of the parties, both constitute one contract does not affect the negotiability of the *Page 261 note. Its face is its passport. However, it is not necessary that the terms of the related contract appear on the face of the note. If there is such reference in the note as imports to the ordinary holder that the note is subject to the terms of the contract, that they are related as parts of a whole, that the obligation of the maker is to be gathered from the entire contract, the note is not negotiable when the contract shows conditions. But "a statement of the transaction which gives rise to the instrument" does not render the note conditional and nonnegotiable. Code, § 9031.
In Strand Amusement Co. v. Fox, 205 Ala. 183, 87 So. 332, 14 A.L.R. 1121, this court reviewed the authorities and laid down the governing rules of construction. See, also, extended note to that case. 14 A.L.R. pp. 1126-1133; Verner v. White,214 Ala. 550, 108 So. 369; Sacred Heart Church v. Manson,203 Ala. 256, 82 So. 498; People's Bank v. Moore, 201 Ala. 411,78 So. 789.
The difficulty arises in making application of these rules to the terms of the reference clause as expressive of the intent of the parties.
The reference clause in the note above quoted shows it was given for part purchase price of named property. Thus far, it is a statement of the transaction out of which it arose, and does not imply the note is subject to the terms of another contract.
But is this all? The clause as a whole is full and explicit, appears in the body of the note following the promise to pay. It clearly imports that the retort plant was purchased as per contract, naming the parties and the date, and that the notes are given as per contract of purchase.
We think the instrument as a whole discloses to the ordinary business man that the note is subject to the terms of the contract thus carefully identified.
It follows the notes sued upon were nonnegotiable, and open to the defense of failure of consideration. The court erred in refusing evidence that the retorts purchased were never delivered.
Reversed and remanded.
ANDERSON, C. J., and THOMAS and BROWN, JJ., concur.
SAYRE, J., not sitting.
ANDERSON, C. J., holds that Strand Amusement Co. v. Fox, supra, should be modified or overruled rather than attempt to differentiate that case from the present.
GARDNER, J., dissents.