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Smith v. Latourrette-Fical Co.

Supreme Court of Arizona

December 15, 1930

THOMAS J. SMITH and JENNIE SMITH, His Wife, Appellants,
LATOURETTE-FICAL COMPANY, a Corporation, Appellee

APPEAL from a judgment of the Superior Court of the County of Pima. Fred W. Fickett, Judge. Judgment affirmed.

Messrs. Curley & Pattee, for Appellants.

Messrs. Mathews & Bilby and Mr. Norman S. Hull, for Appellee.


Page 974

[37 Ariz. 266] ROSS, J.

This is an action by the Latourette-Fical Company, assignee, to recover on a promissory note of the defendants Smith, dated November 17, 1919, and payable to Edwin R. Post in five equal installments of $720 each on July 1, 1921, 1922, 1923, 1924 and 1925, with interest at 6 per cent., and to foreclose a mortgage, of even date, on 40 acres of land and the pumping plant, equipment, and improvements [37 Ariz. 267] thereon and appertaining thereto, given to secure payment of note. The note and mortgage were assigned to plaintiff and recorded before maturity, to wit, on September 4, 1920, for a valuable consideration.

The defense consists of a counterclaim by way of recoupment and set-off. In substance it is alleged in defendants' answer that 15,000 acres of desert land, located in Pima county, owned or claimed by one Edwin R. Post, were by him subdivided into farm units for the purpose of sale to whoever would buy; that as a part of his project he was to develop a water system and sell the land with a permanent water right; that on November 17, 1919, defendants purchased of Post a 40-acre unit of said land, agreeing to pay therefor $6,000; that they paid at said time $1,500 cash, gave their note for $900 payable March 15, 1920, which was paid when due, and their note, being the note and mortgage sued on, for the balance; that as a part of said transaction a water company, organized and dominated by Post, agreed to construct an adequate irrigation system by and through which defendants would be supplied with sufficient water to irrigate the arable and irrigable portions of said 40 acres, beginning the delivery thereof within six months after November 17, 1919, and continuously thereafter as needed, and defendants agreed to pay for water at prices specified in contract; that in October, 1920, Post and his water company being insolvent and unable to carry out the contract to furnish water, plaintiff and other creditors of the project took it over through court proceedings and thereafter caused it to be sold to the Pima Farms Company, a corporation organized by the creditors for that purpose; that from October, 1920, when the project was so taken from Post, until November, 1921, it was under the control and management of a receiver appointed on application of the creditors, [37 Ariz. 268] and thereafter the Pima Farms Company. It is alleged that the contracts between Smith and Post covering the sale and purchase of land were but a single transaction, of which the note and mortgage are a part, and that plaintiff, when it took the assignment of them, had full notice and knowledge of the contents of said contracts. It is then alleged that defendants, during each of the years since they went upon the land, have endeavored to raise crops thereon but have been unable to do so because Post and his water company while in control of the project, and the receiver and Pima Farms Company, while in control thereof, have failed to furnish them sufficient water for the irrigation of the land.

The damages laid are for the years 1924, 1925, 1926, 1927 and 1928, while the Pima Farms Company was in charge of the project, and amount to $5,940.

The answer contains other allegations, but we do not state them because, as we view them, they are either of evidentiary matter or conclusions of the pleader.

The right to set off damages was denied the defendants and judgment was entered for plaintiff for the full face of the note and the mortgage ordered foreclosed. Defendants have appealed.

The questions presented for our determination arise from the rulings of the court rejecting evidence offered by defendants in support of the defense alleged in their answer. We observe that the note sued on is negotiable in form and that it was assigned to plaintiff for value before due. Section 3728 of the Revised Code of 1928 provides:

"An assignment of a chose in action shall not prejudice any set-off or other defense existing at the time of the notice of the assignment; but this section shall not apply to a negotiable promissory note or bill of exchange, transferred in good faith and upon good consideration before due."

[37 Ariz. 269] One of the questions, therefore, is whether the note was transferred in good faith. If the plaintiff is a holder in due course, no defense available to the makers of the note by way of recoupment or set-off can be interposed as against the plaintiff. The assignee of a negotiable promissory note may, however, ...

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