Elgin City Banking Co. v. Hall

• Decision Date: 19 October 1907
• Citation: 108 S.W. 1068,119 Tenn. 548
• Parties: ELGIN CITY BANKING CO. v. HALL et al.
• Court: Tennessee Supreme Court

108 S.W. 1068

119 Tenn. 548

ELGIN CITY BANKING CO. v. HALL et al.

Supreme Court of Tennessee.

October 19, 1907

Appeal from Chancery Court, Bradley County; T. M. McConnell Chancellor.

Suit by the Elgin City Banking Company against J. T. Hall and others. From a decree dismissing the bill, complainant appeals. Affirmed.

Wheeler & Trimble, for appellant.

Mayfield & Mayfield, for appellee Hall.

McALISTER J.

This bill was filed by the Elgin City Banking Company, a corporation chartered under the laws of the state of Illinois, and having its situs and principal place of business at Elgin, in said state, against the defendants, who are all residents of Bradley county, Tenn., for the collection of two promissory notes, together with the accrued interest. Complainant claims to be an innocent holder of said notes, and purchased them before maturity, in due course of trade, without notice of any outstanding equities against them. A copy of one of said notes, together with the indorsements thereon, is in the words and figures following to wit:

"400.00 Cleveland, Tenn., Oct. 1st, 1903.

"On or before the first day of September, 1905, for value received, we jointly and severally promise to pay to the order of Dunham, Fletcher & Coleman, of Wayne, Ill., four hundred dollars ($400.00), payable at the Cleveland National Bank, with interest at 5 per cent. per annum, payable annually from date, until paid.

"Jeff Hall.

"C. T. Carroll, Jr.

"L. L. Callaway.

"L. P. Sullivan.

"T. J. McKamy.

"Edward H. Thurston."

"Pay to the order of W. S., J. B. & B. Dunham, without recourse to us.

"Dunham, Fletcher & Coleman."

"W. S., J. B. & B. Dunham."

"For value received, we hereby guarantee, the payment of the within note at maturity, or at any time thereafter, with interest at 5 1/2 per cent. per annum until paid, and we agree to pay all the costs and expenses paid or incurred in collecting the same, hereby waiving demand of payment and notice of nonpayment.

"W. S., J. B. & B. Dunham."

Defendants answered the bill, in which they admitted the execution of the notes, but denied that complainant is an innocent purchaser of said notes, for value, and in due course of trade. It is averred that said notes were procured by fraud and misrepresentation on the part of Dunham, Fletcher & Coleman, the payees; and as a further defense it is averred that the consideration for said notes has wholly failed.

The more specific averments of the answer are that the notes in suit represented in part the purchase price ($1,600) of a certain horse; that at the time of said purchase the payees, Dunham, Fletcher & Coleman, delivered to respondents a written statement or guaranty of the soundness of said animal, and that he possessed all the qualities represented by the seller, but on delivery of the horse it was soon ascertained that he was stump sucker and did not in any respect possess the qualities guaranteed by said seller. When said facts were communicated to the seller, said firm agreed to receive back the horse, and agreed with two of the purchasers to ship another horse to Cleveland in place of the first, which was accordingly done. It is then averred that the second horse was of a notoriously diseased breed of horses, and was not only thus diseased, but was not up in other respects and qualities to the warranty of the seller, all of which facts were fraudulently concealed from the purchasers. It is then averred that the second horse so shipped to Cleveland died within about two months after his arrival, as a result of his diseased condition at the time he was shipped; and respondents aver that said sellers as horse dealers, must have known of the diseased condition of this horse, but fraudulently concealed the same from respondents.

It is further averred that the agent of the payee of said notes, at the time the defendants agreed to purchase the horse, made secret and fraudulent contracts with certain of said purchasers, in whose judgment as horsemen defendants had confidence, whereby said parties were induced to represent themselves as willing to enter into said purchase as equal partners, and pretended to join with defendants as purchasers, and also pretended to pay or become liable for said sum of $200 each for a one-eighth interest in said horse, for the fraudulent purpose of inducing defendants to enter into said contract; whereas, in fact, neither of the parties to said secret contract contributed said sum of $200, but by the agreement with said seller were either paid large sums in cash, to wit, from $50 to $100, or were given a one-eighth interest free of charge, to have them passed as equal partners or purchasers, and induce defendants to enter into said contract and become liable for said purchase money.

It is averred that the purchase by each of the said eight alleged purchasers was a material part of the consideration for said purchase by all the other purchasers. Defendants, therefore, aver that, because of the fraud, misrepresentations, and concealments on the part of the payees in procuring said contract and notes, and because of said failure of consideration, they are not liable to complainants for the amount of said notes or other sum.

It appears that the notes in question were indorsed by the payees, Dunham, Fletcher & Coleman, to another firm, of which W. S. Dunham was a member, and by that firm transferred before maturity to complainant bank. It is claimed by the complainant that it had no notice of any equities existing against the notes. The complainant bank claims to have purchased the notes by placing the amount paid for them to the credit of W. S., J. B. & B. Dunham (the second indorsers, for whom the notes were discounted) in the First National Bank of Elgin, Ill., a different bank from complainant, which is the Elgin City Banking Company, as already stated.

Proof was taken, and on the hearing the chancellor was of the opinion that the complainant did not give value for the notes; he holding that the defenses alleged were good against the original payee and therefore good also against the complainant. The chancellor was of opinion that the complainant was not an innocent holder of the paper and that the defense set up in the answer had been established by the proof, and he accordingly dismissed the complainant's bill. The complainant appealed, and has assigned errors.

The first inquiry naturally arising is whether there was fraud in the original inception of this contract, for which the notes in question were executed in part fulfillment.

It is shown on the record that one Campbell, the agent of the payees, Dunham, Fletcher & Coleman, brought the first horse in question to Cleveland, and, having failed to sell him, proposed to six of the defendants to purchase the horse for $1,600, as equal partners. It is shown by the proof that said agent stated to the defendant E. H. Thurston that several others would join in the purchase if Thurston would become interested, and proposed that Thurston should hold himself out as a purchaser and affect to pay said sum of $200 with the others, but he should pay only $100, and the remaining $100 would be repaid to him; and it is shown that Thurston, under this secret contract, did thereafter pretend to join with the others as an equal partner in said purchase. It is also shown that said seller approached one M. L. Beard, of Cleveland, an old and experienced dealer in horses, and on whose judgment the other purchasers relied, and proposed that said Beard should also become a colorable purchaser, and should receive a one-eighth interest in said horse gratis, if he would profess to join in said purchase; and under this agreement, Beard did thereafter pretend to be a bona fide purchaser, and permitted the seller to so represent him. The seller not only represented Beard as one of the purchasers, but some of the other purchasers were referred to him for his judgment as to the merits of the horse.

It is also shown that said agent agreed with J. T. Hall, another of said purchasers, to pay said Hall the sum of $50 for his services in inducing the others to join in said purchase. It is shown that none of the other purchasers knew or suspected these secret and fraudulent contracts had been made, but supposed that all the others were entering into the purchase on equal terms of partnership. It was represented to the five purchasers who received no secret consideration that seven others had agreed to join, and that it was only necessary that he agree to join to complete the purchase. It is further shown that when the eight purchasers met with said seller to complete the purchase and sign the notes for the purchase money, Thurston and Hall, at the request of the seller signed the notes with the others, and the seller then secretly paid to them in cash the sums of $100 and $50 respectively, according to their secret arrangement. The seller also desired said Beard to sign said note and receive $200 in cash; but Beard objected to this, and it was thereupon announced to the others that Beard was paying his part of the purchase money to said seller in cash, but in fact nothing was paid by him. It is shown that one of said purchasers, G. W. Day, paid the seller the sum of $200 in cash, and this, with the $200 alleged to have been paid by said Beard, left a balance of $1,200, and for this sum the six defendants executed three notes, each for $400, due, respectively, on or before September 1, 1905, 1906, and 1907, with interest at 5 per cent., payable annually. It is also shown by the proof that, while the agent made many representations and warranties as to the soundness and fine breeding qualities of the animal, he carefully kept the horse in a locked box stall before the...