Edgar v. Haines
| Decision Date | 15 December 1923 |
| Docket Number | 17852 |
| Citation | 109 Ohio St. 159,141 N.E. 837 |
| Parties | Edgar v. Haines Et Al. |
| Court | Ohio Supreme Court |
Negotiable instruments - Transfer of interest of one joint payee - Renders note nonnegotiable, when - Equitable interest assigned, when - Assignment induced by fraud - Equities of assignee superior to original assignors, when.
1.Where a promissory note is made payable to the order of two payees who are not partners, and neither payee has authority to transfer the interest of the other, an assignment by one payee of his part interest in the note to a third party takes away the negotiable character of the instrument and renders it a nonnegotiable chose in action.
2.Such assignment is not void, but operates as an assignment of the equitable interest of the assignor.
3.Where E transfers to M a nonnegotiable chose In action, which assignment is Induced by the fraud of M, and afterwards M transfers the same to K, and K thereafter assigns the same to S, all of which transfers are by Indorsement and delivery and both K and S pay a valuable consideration therefor without notice or knowledge of the fraud of M, the equities of S are superior to those of E, and the situation is a proper one for the application of the legal maxim that, where one of two innocent persons must sustain a loss from the fraud of a third, such loss must fall upon the one, if either, whose act has enabled such fraud to be committed.
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This cause comes to this court on error from the Court of Appeals of Harrison county, in which court it was tried on appeal from the common pleas court of that county. On November 8 1919, Robert Haines and Ethel M. Haines executed their promissory note of that date "to the order of Frank S. Edgar and John W. Wells," which note became due and payable November 8, 1920. The note was collaterally secured by a real estate mortgage properly executed, delivered, and recorded. On January 10, 1920, F. S Edgar, the owner of the one-half interest in the note, and who had possession of it, indorsed the same as follows:
Thereafter, ad before November 8, 1920, J. E. Mayer indorsed his name on the back of the note, and delivered the note to one Louis Kaufman, and thereafter, on February 10, 1921, about three months after its maturity, Louis Kaufman assigned and transferred his interest in the note and mortgage, and delivered the note and mortgage to the Sixth Real Estate Security Company. It was in course of time discovered that in the business transaction between F. S. Edgar and J. E. Mayer, resulting in the transfer of the one-half interest in the note and mortgage, Edgar was defrauded, and that he received no value for his interest in the note. This fact was, however, not known to subsequent indorsees and holders of the note and mortgage at the time they acquired their interest in and possession of the note and mortgage, and it is undisputed that each and all of said owners and holders other than J. E. Mayer paid a valuable consideration for same. It is conceded that the payees of the note, John W. Wells and Frank S. Edgar, were not partners and that Edgar did not have any authority from Wells to indorse or transfer the note.
On April 8, 1922, Frank S. Edgar and John W. Wells brought an action to foreclose the mortgage and to cause the sale of the real estate, and prayed that out of such sale the amount due each of them be paid. The Sixth Real Estate Security Company was made a defendant in that action, and that company answered, denying that plaintiffs were the owners of the note, and setting forth the facts aforesaid, and in a cross-petition alleged the possession of the original note and ownership of one-half interest therein, and prayed that the makers thereof be ordered to pay the same, and in default thereof that the proceeds of the sale of the mortgaged property be paid to such cross-petitioner. In a reply to that pleading Edgar pleaded fully the fraudulent transaction with Mayer as a defense thereto. The makers of the note are solvent, and made no defense, but, on the contrary, filed an interpleader, and deposited the amount of the note in court; to be disbursed in accordance with the final outcome of the controversy between Edgar and the Sixth Real Estate Security Company.
Mr. Cheever W. Pettay and Messrs. Buchanan, Reed & Russell, for plaintiff in error. Messrs. Caldwell, Brunner & Van Buren; Mr. Frank B. Grove and Mr. E. S. McNamee, for defendants in error.
The first problem presented by this record relates to the law of negotiable instruments and may be solved by reference to the provisions of the Uniform Negotiable Instruments Act, Sections 8106 to 8230, inclusive, General Code. This instrument was originally a negotiable instrument, meeting all the requirements of the provisions of Sections 8106 to 8109, inclusive, General Code, but being payable to two joint payees, who were not partners, ad neither having any authority to transfer the interest of the other, it was clearly subject to the provisions of Section 8137, General Code, which provides:
The transfer of the instrument in the manner in which the same was transferred by Edgar, being in contravention of the plain provisions of that section, stripped the instrument of some of...
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