The plaintiffs are doing business as the Citizens' Bank of Hadley, Michigan. They brought this suit to recover the amount of a promissory note, given by the defendants to the Equator Oil Range Company for $500. The note was executed on October 23, 1923, and was payable on the first of May, 1924. On its face, it was stated that it was collateral to a stock subscription of even date therewith. It was indorsed by the payee to the plaintiff bank. The defense was that the note was procured by fraud; that it was without consideration; that it was given as collateral to a stock subscription and was therefore nonnegotiable; that there was no liability on the stock subscription contract because it had not been completed by acceptance of the company; and that no stock had been delivered to the defendants or tendered to them. At the conclusion of the proof, both parties moved for a directed verdict. The court directed the verdict in favor of the defendants. Judgment was entered on the verdict. The plaintiffs have brought error.
The plaintiffs' right to recover in this case depends upon the negotiability of the note on which they sue. If it is a negotiable instrument, they are holders in due course and are entitled to recover the full amount *Page 228 of the note. If it is not negotiable, they hold it subject to any legal defense which the defendant would have against it if it were still in the hands of the Equator Oil Range Company.
The note is not negotiable. It refers to another collateral instrument which must be read in connection with it. On its face is the statement:
"This note is collateral to stock subscription number . . . . . . . . . . . . . . of even date herewith."
This statement was notice to the plaintiffs of another contract which they were bound to take into consideration in buying the note. If there was any uncertainty about the makers' liability on the face of the subscription contract, it would be repugnant to the certainty of the promise in the note.
In Costelo v. Crowell, 127 Mass. 293 (34 Am. Rep. 367), it was said:
"The words written upon the face of the note, 'given as collateral security with agreement,' being incorporated in and made part of the contract, indicate with clearness that there may be a contingency, to wit: the performance of the undertaking to which this is collateral, in which it would not be payable; and so it lacks that element of negotiability which requires that at all events a sum certain shall be payable at a certain time."
See, also, 8 C. J. p. 120; 3 R. C. L. p. 883, § 69.
The test of negotiability would seem to be whether there was an uncertainty in the subscription contract that would render uncertain the express promise in the note to pay unconditionally and at all events a certain sum in money. A reference to the terms of the stock subscription contract will show that certainty of payment depended upon the approval of the contract by the Equator Oil Range Company, and no approval appears on the face of the instrument. There was no binding agreement to pay until the approval *Page 229 was made by the company. The subscription was merely an offer to subscribe, which offer was never accepted by the company by word or act. The subscriber never became bound to pay for the stock. The company never became bound to issue stock to him. If the defendant were here suing to enforce his subscription, the company could truthfully say that it never accepted him as a stockholder. If the note had remained in the hands of the company, the defendant could not have been compelled to pay. It is subject to the same defense in the hands of the plaintiffs.
The claim that this defense was not open to the defendants, because no affidavit denying the execution of the note was filed, has no merit. No other questions require discussion.
The judgment is affirmed, with costs to the defendants.
CLARK, BIRD, and SHARPE, JJ., concurred with McDONALD, J.