Carter v. Moulton

• Decision Date: 01 January 1893
• Citation: 51 Kan. 9,32 P. 633
• Parties: MARTHA A. CARTER v. A. L. MOULTON
• Court: Kansas Supreme Court

32 P. 633

51 Kan. 9

MARTHA A. CARTER v. A. L. MOULTON

Supreme Court of Kansas

January 1, 1893

Error from Marion District Court.

ACTION by Moulton against Carter on a promissory note. Plaintiff's demurrer to defendant's answer was sustained, and defendant comes to this court. The opinion states the facts.

Jetmore & Jetmore, for plaintiff in error:

1. It is conceded by the demurrer that the plaintiff in error signed the note as surety only, which was at the time known to the defendant in error, the payee of the note; and that she so signed the same on the express condition that it should remain in escrow and should not be delivered to the payee, and should not become valid as to the plaintiff in error, as such surety, until the real-estate mortgage should be executed by the principal of said note, on his homestead to secure the payment thereof, which condition was never performed. By the failure to perform said condition, the note is not the contract of the plaintiff in error, and she is not liable thereon. This doctrine seems to be well settled on principle and authority. Pepper v. The State, 22 Ind. 399; The State v. Bostwick, 32 N.Y. 445; Pawling v. United States 4 Cranch, 219; State Bank v. Evans, 3 Green (N.J.), 155; Ayres v. Milroy, 53 Mo. 516; Lovett v. Adams, 3 Wend. 380; Moore v. Cockroft, 4 Duer, 133; Johnson v. Weatherwax, 9 Kan 75; 1 Story, Eq. Jur., § 164a.

And the above rule holds good as to all written obligations (unless as to deeds of real estate), upon the principle that, until the condition is complied with, the contract is not complete and the instrument is only an escrow. Hathway v. Payne, 34 N.Y. 92.

And this doctrine applies to negotiable instruments, except in the hands of a bona fide holder for value before due. Mickles v. Calvin, 4 Barb. 304; Farington v. Bank, 24 id. 554; Chapman v. Rose, 56 N.Y. 137; Bodley v. National Bank, 38 Kan. 59; Hatch v. Barrett, 34 id. 223; Briggs v. Latham, 36 id. 205, 210; Bank v. Ayres, 16 Ohio 282, 292.

A promissory note negotiable in form may be held in escrow. Taylor v. Thomas, 13 Kan. 217; Ogdon v. Ogdon, 4 Ohio St 182.

The instrument in suit has never been negotiated. It has not in fact ever acquired a commercial character; and there is nothing in this case to bring it within the principles of the law merchant, save the mere form of a negotiable promissory note. In fact, it only could acquire a commercial character, and become a negotiable instrument under the statute of Kansas, "by indorsement thereon" before due. Gen. Stat. of 1889, PP 477, 478; Edw. Bills & N., p. 287; Norton v. Foster, 12 Kan. 44; McCrum v. Corby, 11 id. 470; Hatch v. Barrett, 34 id. 223; Hadden v. Rodkey, 17 id. 429; Bank v. Ayres, 16 Ohio 292; Barnard v. Campbell, 55 N.Y. 461; 1 Smith's Leading Cases (6th ed.), 742.

2. The note in suit, never having been delivered, is void as against the plaintiff in error. A delivery is essential to the validity of the note, whether negotiable or otherwise. Edw. Bills & N., pp. 186, 192, 286; Briggs v. Latham, 36 Kan. 205; Pawling v. United States, 4 Cranch, 219; Crawford v. Foster, 6 Ga. 202; 1 Wait, Act. & Def. 679.

And where the note is delivered as an escrow by the surety to the principal, and by the latter to the payee, absolutely and without condition, the ignorance of the payee does not discharge the condition and constitute the delivery a valid delivery. Perry v. Patterson, 5 Humph. 133; Pawling v. United States, 4 Cranch, 218; The People v. Bostwick, 32 N.Y. 445.

W. H. Carpenter, for defendant in error:

Did the court below err in deciding that a surety who signs a note that is perfect and complete on its face cannot set up, as a defense to the payment of such note, that the note was signed by him as a surety and delivered to the principal with the understanding between principal and surety that the note should not be delivered to the payee until a certain real-estate mortgage was given by the principal to secure the payment of the note? The supreme court of Indiana, in the case of Deardorff v. Foresman, 24 Ind. 481, say: "Where the surety places the instrument, perfect on its face, in the hands of the proper person to pass it to the obligee, the law justly holds that the apparent authority with which the surety has clothed him shall be regarded as the real authority, and as the condition of the delivery was unknown to the obligee, therefore the benefit of such condition shall not avail the surety." This decision was affirmed in Webb v. Baird, 27 Ind. 368, and Blackwell v. The State, 26 id. 204.

The same rule as laid down by the supreme court of Indiana has been announced in the following leading cases: Bonner v. Nelson, 57 Ga. 449; Bank of Missouri v. Phillip, 17 Mo. 30; Merriam v. Rockwood, 47 N.H. 81; Gage v. Sharp, 24 Iowa 15 (exactly in point); McCramer v. Thompson, 21 id. 244; Dair v. United States, 16 Wall. 1 (the leading case); Nash v. Fugate, 24 Gratt. 202; 32 id. 595; Cutler v. Roberts, 7 Neb. 637; The State v. Potter, 63 Mo. 212; The State v. Peck, 53 Me. 284; Webb v. Jones. 1 Law Rep. (N. C.) 510; Biglow v. Comeggo, 5 Ohio St. 256; Millet v. Packer, 2 Metc. (Ky.) 608; The State v. Pepper, 31 Ind. 76.

ALLEN J. All the Justices concurring.

OPINION

ALLEN, J.:

This action was brought by A. L. Moulton on a promissory note, which reads as follows:

"$ 600.

MARION, KAS., December 7, 1887.

"Nine months after date, we promise to pay to the order of A. L. Moulton, at the Cottonwood Valley Bank, Marion, Kan., six hundred dollars, with interest at 12 per cent. per annum until paid. Value received.

J. M. WISHART.

R. E. KNAPP.

R. C. CABLE.

C. E. FOOTE.

M. A. CARTER."

The defendant, M. A. Carter, filed her separate answer, which reads as follows (omitting title):

"Now comes the defendant, M. A. Carter, and for her separate answer herein says, that the consideration of the note sued on by the plaintiff herein was for money borrowed by J. M. Wishart of and from the plaintiff, no part of which was ever had or received by this defendant; that this defendant signed said note as surety only for said Wishart, all of which was at the time well known and understood by the plaintiff; that this defendant signed her name to said note only as an escrow, on the express condition that said Wishart, the principal in said note, would hold the same as such escrow, and not deliver it to the plaintiff until he, the said Wishart, should execute in favor of said plaintiff, to secure the payment of said note and interest, a mortgage on his homestead in the city of Marion, county of Marion, state of Kansas, and upon that condition only did this defendant sign her name to said note, and not otherwise; and that defendant never delivered said note to plaintiff, nor authorized the same to be delivered, and if delivered by said Wishart, it was done without the authority or consent of defendant; that said Wishart failed, neglected and refused to execute said mortgage on his homestead in favor of said plaintiff to secure the payment of said note and interest as aforesaid. Wherefore, said note is not the act and deed of this defendant. Defendant having fully answered, asks to be discharged, with her costs."

To this answer the plaintiff demurred, and the district court sustained the demurrer, and the plaintiff in error brings the case here to review that decision.

Counsel for the plaintiff in error contend that the note sued on was signed by the plaintiff in error as surety only upon an expressed condition which was never performed, and that the plaintiff in error was therefore not liable; that the note is void because it was never delivered to the defendant in error by the plaintiff in error, or by her authority. It is conceded by the demurrer that the plaintiff knew the fact that M. A. Carter signed the note as surety, but it is nowhere averred that the plaintiff knew of the agreement between M. A. Carter and the principal in said note with reference to the giving of a mortgage. The plaintiff in error contends that the delivery of the note by the surety to the principal after its execution by the surety under an agreement of the kind stated in the answer made the instrument an escrow, and that no validity could be given to it by a delivery in violation of the terms agreed on between the parties.

It is true that the holder of an instrument placed in escrow can give it no validity, generally speaking, by a delivery in...