First Nat. Bank of Decorah v. Laughlin

• Decision Date: 10 December 1894
• Parties: FIRST NAT. BANK OF DECORAH v. LAUGHLIN et al.
• Court: North Dakota Supreme Court

4 N.D. 391

61 N.W. 473

FIRST NAT. BANK OF DECORAH

v.LAUGHLIN et al.

Supreme Court of North Dakota.

Dec. 10, 1894.

Syllabus by the Court.

1. The action being upon a written instrument, which, when executed and delivered by the makers thereof (the defendants), was in all respects a negotiable promissory note, in form, except as to the words quoted below, which words constituted the last sentence of the instrument above the signatures, viz.: “Agreeing to pay all expenses incurred by suit or otherwise in attempting the collection of this note, including reasonable attorney's fees,”- held, that the instrument was a nonnegotiable instrument when executed and delivered.

2. Suit being brought upon such instrument by a good-faith purchaser thereof before its maturity, and it appearing when the note was offered in evidence that the words above quoted were stricken out and erased from the instrument, held, that if it appeared by the evidence that after the delivery of the instrument to the payees, and without the consent of the makers, the instrument was altered as aforesaid, such alteration would be material, and, if fraudulently made, it would so operate as to extinguish the note as a legal obligation, and the debt evidenced thereby.

3. The defendants, by their counterclaim, alleged, in substance, the following facts: That said defendants, at the time of executing and delivering the above-described instrument, executed and delivered to the same payees another instrument, couched in precisely the same language as that sued upon, except as to time of payment and the amount agreed to be paid; that said instrument, after such delivery, and without defendants' consent, was also fraudulently altered by striking therefrom the words above quoted; and that after such alteration, and at the maturity of the note, the plaintiff presented said note for payment to the defendants, and that defendants paid said altered note to plaintiff in ignorance of the fact of such alteration. Held, when liberally construed, that the facts alleged are not sufficient to constitute a counterclaim. There is no averment that the note which was paid was given without consideration, and unless it was so given it would be both illegal and contrary to natural justice to compel the plaintiff to refund the money.

4. Objections to testimony offered by the defendants in support of their counterclaim were duly made by the plaintiff's counsel, and overruled by the trial court. Held, upon the grounds last above stated, that such rulings were prejudicial error.

5. Held, further, where an error of law is properly specified in a bill or statement, this court (pursuant to No. 15 of its rules) will, in its discretion, relax the requirement concerning the assignment of errors in this court when, as in this case, to do so will, in the opinion of this court, be in furtherance of justice.

6. Where, in a motion to direct a verdict for the plaintiff, the grounds of the motion were severally and distinctly stated, and such grounds were invalid, held, that a denial of the motion was not error. Held, further, that the attention of the court and opposing counsel having been directed to certain specified grounds, all other grounds were excluded, and no other or different grounds will be considered by this court in reviewing the ruling.

7. At the trial, plaintiff objected to testimony offered by defendants to prove the counterclaim, upon the ground that the matter set up in the answer does not constitute a counterclaim in this action. The objection was overruled. Held, that the ruling was proper, inasmuch as this objection can only be raised by demurrer.

Appeal from district court, Ransom county; W. S. Lauder, Judge.

Action by the First National Bank of Decorah against A. H. Laughlin and others on a promissory note. Judgment for defendants, and plaintiff appeals. Modified.Newman, Spalding & Phelps, for appellant. P. H. Rourke, for respondents.

WALLIN, J.

Plaintiff sues as the bona fide purchaser of a promissory note. The complaint is in the usual form, and describes the note upon which suit is brought. Plaintiff claims as indorsee of Rix & Goodenough. The action was against the makers of the note. The defendants, in their answer, deny that they ever executed or delivered the note described in the complaint, but admit that they executed and delivered to the firm of Rix & Goodenough a writing in all respects similar to the note described, except that it contained the words: “Agreeing to pay all expenses incurred by suit or otherwise in attempting the collection of this note, including reasonable attorney's fees.” And they allege that after the execution and delivery of said note, and without the knowledge or consent of defendants, or either of them, the said note was materially and fraudulently altered by striking therefrom the words above quoted, and allege that said alteration changed said note from a nonnegotiable to a negotiable instrument, and rendered the said note void, and extinguished the indebtedness upon which it was based. They further set up that the note in suit and two others were executed and delivered by them to said Rix & Goodenough as the purchase price of one stallion purchased by them from said firm at the agreed price of $2,000; that one of said notes was for $600, and the other two, one of which is here in suit, for $700 each; that said stallion was sold with a warranty to the effect that he was sound and healthy, and a good foal getter. They negative the existence of these qualities, and allege that the horse was worthless. As a separate and distinct counterclaim, defendants allege the execution and delivery of the $600 note, the same being identical in all respects with the note sued upon except as to amount and date of maturity; allege the alteration of said note in the same manner and for same purpose as the note in suit; and state that at or soon after the maturity of said note the defendants, by mistake, and in ignorance of said alteration, paid the amount of said note to the plaintiff herein, and took the same up. Defendants demand judgment of dismissal as to plaintiff's cause of action; also judgment on said counterclaim for the sum of $662, with interest from November 1, 1891. There was a jury trial, and the verdict was, “No cause of action as to the note described in the complaint,” and was in favor of defendants to the full amount of said counterclaim. The plaintiff moved for a new trial, basing the motion on a statement of the case. The district court denied the motion, whereupon judgment was entered below upon such verdict, from which plaintiff appeals to this court.

The errors assigned in this court are:

The court erred in permitting defendants to amend their answer. This assignment of error is untenable. During the trial the court permitted the answer to be amended by adding thereto the following words concerning the warranty: “And in the sale of said stallion by said Rix & Goodenough, and the purchase by defendants, the defendants relied wholly upon said warranty, and purchased the horse upon the faith thereof, and not otherwise.” The trial courts have extensive discretionary powers under the Code in the matter of granting amendments to the pleadings, either before or after judgment, in furtherance of justice; and it is well settled that the exercise of such discretion will not be reviewed by the appellate courts except in cases of abuse. The amendment allowed in this case introduced no new feature into the case, and could not, we think, have operated as a surprise to the plaintiff. Finding no abuse of discretion in allowing the amendment, this assignment of error is overruled.

The second assignment of error is as follows: “The court erred in admitting evidence of the alleged alteration of the notes in question.” Against plaintiff's objection thereto, evidence was introduced by the defendants tending strongly to show that all of the notes, when signed and delivered by the makers thereof to Messrs. Rix & Goodenough (the payees), were in the words and figures as set out in the defendants' answer; and that all of said notes, after their execution and delivery as aforesaid, were altered by some one other than the defendants, by striking therefrom, and from each and all of them, the following language: “Agreeing to pay all expenses incurred by suit or otherwise in attempting the collection of this note, including reasonable attorney's fees.” We are of the opinion that the testimony was admissible. The defense of a material and fraudulent alteration of the notes after their delivery is pleaded in the answer both as to the note sued upon by the plaintiff and the note pleaded in connection with the defendants' counterclaim. We think the defense of a material and fraudulent alteration of the notes as above pleaded in the answer is a valid legal defense to the notes, and, if established by testimony, would operate, as against the defendants, to extinguish both the notes and the debt evidenced by them. The notes, in the form in which they were drawn and delivered to Rix & Goodenough, were, by a decided weight of authority, nonnegotiable instruments. The last sentence in the notes above the signatures operates to render the paper nonnegotiable in form and in law; but if the erasure was done after delivery, and for a fraudulent purpose, the effect would be to nullify them, and extinguish the debt as against the makers. When so altered, the notes would have the appearance on their face of valid, negotiable paper, as the legal presumption prima facie is that alterations appearing upon written instruments were made before delivery. But, as we said, the notes, when fraudulently altered after delivery, would, as against the makers, cease to be valid obligations, even in the hands of a good-faith purchaser. A settled public policy, long sanctioned by the courts, demands that such fraudulent paper should be rendered null and void as...