Evans v. Speer Hardware Company

• Decision Date: 02 April 1898
• Citation: Evans v. Speer Hardware Company, 65 Ark. 204, 45 S.W. 370 (Ark. 1898)
• Parties: EVANS v. SPEER HARDWARE COMPANY
• Court: Arkansas Supreme Court

45 S.W. 370

65 Ark. 204

EVANS v. SPEER HARDWARE COMPANY

Supreme Court of Arkansas

April 2, 1898

Appeal from Sebastion Circuit Court, Fort Smith District, EDGAR E BRYANT, Judge.

STATEMENT BY THE COURT.

Appellee brought suit on the following note. "Fort Smith, Ark January 16, 1895. No. 1209. Due April 16, 1895. $ 300.00. Ninety days after date, without grace, we, or either of us promise to pay to the order of Merchants' National Bank of Fort Smith, Ark., three hundred dollars, for value received, negotiable and payable without declaration or discount, at the negotiable and payable without defalcation or discount, at the the rate of ten per cent. per annum until paid. Demand, notice and protest waived. Ed. Hiner, D B. Castleberry, J. H. Evans."

The complaint declares that said note on January 30, 1895, was indorsed by the said Merchants' Bank without recourse and that said note, before the maturity thereof, and for value, became the property of plaintiff (appellee), that it was past due, and that defendants (appellants), though often requested, refused to pay same. The prayer was for the amount of the face of the note, with interest at ten per cent. from maturity. Ed. Hiner did not answer, and judgment was rendered against him by default. The answer of Evans and Castleberry admitted that they executed the note sued on, but denied that appellee was an innocent holder thereof for value, denied that it was a holder at all as against the appellants and declared the facts to be substantially as follows: "That they signed said note as sureties for Hiner, for his accommodation merely, no consideration moving to them; that they became such sureties for the purpose of aiding Hiner to borrow said sum from the Merchants' Bank, with an agreement and understanding with him that the money so borrowed should be applied to the payment of certain debts, part of which was owing to Evans, and the remainder were debts upon which Evans and Castleberry, or one of them, were sureties for said Hiner; that Hiner offered said note to the Merchants' Bank, and it declined to accept it, and afterwards Hiner took it to plaintiff, and it took it as a security or a payment for a debt owing it by Hiner, upon which these defendants were not securities, and paid said Hiner a sum of money, amount unknown to the defendants, no part of which was applied to the payment of any of the debts upon which defendants were security, and which were agreed to be paid from the proceeds of the note. That the Merchants' Bank never had any title, right, interest, or claim to said note, which fact was well known to plaintiff when it acquired the same. That the action of Hiner in negotiating said note to plaintiff was without the knowledge, authority or consent of Evans and Castleberry, and has never been ratified. The defendants aver that the plaintiff is not an innocent purchaser for value, in the due course of trade, of said note, but took the same with knowledge that these defendants were sureties for Hiner, with knowledge that the note was being diverted from its original purpose, and did not acquire any right of action thereon as against these defendants."

Counsel for appellant states the facts as follows: Hiner applied to Evans and Castleberry to become his sureties on note for $ 500. It was finally agreed that they would become his sureties on note for $ 300 to American National Bank, and did so, but the bank refused the notes. From the proceeds of the money so derived, Hiner was to pay certain other debts that Evans and Castleberry, or either of them, were sureties on, and gave them a mortgage of indemnity on 360 acres of land, indemnifying them for their suretyship upon said note to American National Bank, and three other notes therein specified, and any other matters upon which they might become his sureties, and also for any extensions or renewals of their present suretyship, or anything in lieu thereof. At about the same time Hiner executed the mortgage and note to American Bank, he got Evans to indorse his note to Paris Bank for $ 100, due in ten days, which was to have been paid from the proceeds of note to American National Bank. After American National Bank refused to take the note, Hiner brought it back to Evans and Castleberry, and told them he could get the money from the Merchants' Bank at Fort Smith, and Evans wrote a note payable to Merchants' Bank, and he and Castleberry signed it with Hiner. No instructions or restrictions were given, the note was expressly payable to order of Merchants' Bank, and nothing was said about getting the money elsewhere. Hiner presented it to Merchants' Bank. It declined to take the note. Then he took it to Speer Hardware Company, and it agreed to take the note if he would pay a bill he owed them, and, upon his agreeing thereto, either Hiner or C. E. Speer (the testimony differs as to which, and it is immaterial) had the cashier of Merchants' Bank indorse the note without recourse. The bank had no interest in the note when it made that indorsement, and that fact was known to plaintiff. It was purely an indorsement so as to show title on the face of it. Speer Hardware Company deducted about $ 88 or $ 89 from the $ 300 note, and paid Hiner the difference. Hiner paid no part of the surety debts, nor performed any part of his obligations agreed upon as a condition to signing the note, according to the testimony of Evans and Castleberry, except a payment of the Bank of Paris note.

To this should be added that, according to the understanding between Hiner and appellants, the latter were interested in the application of the proceeds to be realized from the note, but the appellee had no notice of this fact, nor of any understanding between Hiner and appellants as to how the proceeds of the note were to be applied by Hiner, nor that they had signed upon any conditions. The note was transferred to appellant before maturity, the indorsement being as follows: "Without recourse Merchants' Bank, Fort Smith, Ark.; C. S. Smart, cashier."

Verdict was for the full amount of the note, with interest, and judgment entered accordingly, which this appeal seeks to reverse.

Judgment affirmed.

Hill & Brizzolara, for appelants.

The note, being diverted from its original payee, is not binding upon the sureties, unless such diversion is ratified. 16 Ohio 283; 10 Johns. 182; 9 Wheat. 703; 18 Ohio St. 353; 36 Vt. 536; 16 Pick. 574; 24 Iowa 15; 32 Iowa 22. Where a note is given to raise money for any special purpose, and diversion releases sureties. (9 Wend. 170; 10 Johns. 198; 37 Ia. 618; 73 N.Y. 279), unless the holder can show that he received it in due course of trade and without notice. 10 Johns, 231; 15 Johns. 270; 6 Wend. 615; 65 N.Y. 438. The note was not a general letter of credit. Anderson's Law Dict. 613. There was no ratification, by the sureties, of the act of maker in negotiating the note to a party and for a purpose other than that contemplated by the contract of suretyship. No conduct or silence of appelants induced any change in situation of or any damage to appellee; hence no estoppel. Bigelow, Estoppel, 588-596, an notes. Where there is an agency, ratification may be inferred from acceptance of benefit; and where there is no agency, estoppel may arise from such acceptance. Mechem, Agency §§ 148-150; Bigelow, Estoppel, 683-687. Ratification is a question of intention, express, or implied. 32 Pa.St. 347; Mechem, Agency §§ 100, 146-7. There having been no agency or contract, any confirmation of the unauthorized sale would have to be on a new consideration. 55 Ark. 423; 82 N.Y. 327! 16 Mich. 259; Mechem, Agency, §§ 62-63; Ewell's Evans, Agency, *62 and 63.

Ira D. Oglesby, for appellee.

Appellants did not restrict the negotiation of the note of any party; hence they are bound by it in the hands of any one to whom the holder negotiated it. 48 Ark. 454; 11 Conn. 388; 5 How. (Miss.), 301! 10 B. Monroe, 266; 5 Wend. 66; 112 Ind. 207! 17 Johns. 176; 71 Maine, 270; 38 N.H. 166; 36 Vt. 554; 10 Johns. 198; 10 Wend. 315; Daniel, Neg. Inst. § 792; 30 S.W. 637; 28 S.W. 348. Ratification is equivalent to prior authority. Mechen, Agency, § 135. As to what amounts to ratification, see Mechem, Agency, § 148, 153, 154, 157; 79 Am. Dec. 385 and note p. 387.

OPINION

WOOD, J., (after stating the facts.)

There is nothing upon the face of the note to show the status or relation of the signers to each other. Appellants are not endorsers. They do not sign as sureties, but appear upon the face of the paper as makers. The proof, however, shows that appellants are makers for the accommodation of Hiner. The note was in Hiner's hands, to be negotiated for his benefit, which appellee knew. This was sufficient notice to it of the character of the instrument. 1 Am. & Eng. Enc. Law, 367.

Can appellee, the holder of accommodation paper, having knowledge of its character when it was received, recover of appellants, the makers of such paper? One who signs negotiable paper for accommodation confers authority on the party. accommodated to bind him, the accommodation party, in favor of third persons by the issue of the paper, and when such paper has been negotiated, the maker is bound to the payee, indorser, or holder from the date of the instrument, according to the rules of the law merchant. 1 Am. & Eng. Enc. Law (2d Ed.), pp. 340, 350.

The note in suit was a negotiable promissory note, signed by appellants, and turned over to Hiner "for the purpose of getting money on it." They gave it to him to get the sum of $ 300 from the bank, but, in the language of one of the appellants, "it was immaterial where he [Hiner] got the money from; they had no objection to where he got the money and made no restriction; did not tell him from whom he should get it;...