First National Bank of Decorah v. Laughlin
| Decision Date | 10 December 1894 |
| Citation | 61 N.W. 473,4 N.D. 391 |
| Court | North Dakota Supreme Court |
Appeal from District Court, Ransom County; Lauder, J.
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.
Modified and affirmed.
Newman Spalding & Phelps, for appellant.
The alteration to effect the validity of the note, or the obligation of the defendants under it, must be material. 2 Parsons on Contracts, 716, 724; Parsons on Notes and Bills 564; Jones on Const. of Contracts, 263-4; Harrington v Crane, 5 Cal. 173; Turner v. Billingham, 2 Cal. 520; Brown v. Pinkham, 18 Pick. 172; Burlingame v. Brewster, 22 Am. Rep. 177; Hayes v. Mathews, 30 Am. Rep. 226. The alteration complained of was immaterial. The obligation of the defendants was the same with or without the clause erased.
The defendants cannot recover on their counterclaim. They were not accommodation makers, but had received and held the full consideration for their money paid. The defendants were guilty of want of ordinary care which as between them and the plaintiff, an innocent party, they were bound to use, and did not on the discovery of the alteration demand repayment. 3 Rand. on Com. Paper, 562, 563; Johnson v. Com. Bank, 27 W.Va. 343; Young v. Adams, 6 Mass. 182; Gloucester Bank v. Salem Bank, 17 Mass. 33; Price v. Neal, 3 Burrows, K. B. 1354; Gillette v. Brewster, 20 At. Rep. 105.
P. H. Rourke, for respondents.
As the notes were originally made they were nonnegotiable in form. Garretson v. Purdy, 3 Dak. 178, 14 N.W. 100; § § 1822, 1827, Civil Code. The erasure of the stipulation for payment of attorneys fees and costs, was a material alteration. It changed the obligation from a nonnegotiable contract to a negotiable promissory note. Daniels Neg. Inst. 1395; Edwards on Bills, 95; State v. Stralton, 27 Ia. 424; Brown v. Straw, 6 Neb. 536. The effect of such alteration is to destroy the altered instrument as a legal obligation, whether made with a fraudulent intent or not. Daniels on Neg. Inst. 1411; Harsh v. Kleppen, 20 Ohio St. 200; Booth v. Power, 56 N.W. 31; Needles v. Shaffer, 60 Ia. 65; Fraudulent alterations extinguish the debt. Daniels Neg. Inst. 1410; Booth v. Powers, 56 N.Y. 31; Meyer v. Huneke, 55 N.W. 412. The burden of proof is on plaintiff to show that the alteration was made before the instrument was delivered. Daniels Neg. Instruments, 1417; Adair v. Egland, 58 Ia. 315. A note materially altered is void in the hands of innocent third parties, who took the same for valuable consideration before maturity and without notice. Scofield v. Ford, 9 N.W. 309; Wait v. Pomeroy, 20 Mich. 425. Money paid under a mistake of fact may be recovered back. Daniels Neg. Inst. 1369; Louisiana v. Wood, 101 U.S. 198; Carpenter v. Northburg Nat. Bank, 123 Mass. 69. A party making payment upon a security bearing a forged signature, supposing it to be genuine may recover back the amount. Daniels Neg. Inst. 1369; Welsh v. Goodwin, 123 Mass. 77. And if the signature be genuine but the instrument has been so altered as to render it void, the accomodation party who pays it by mistake or ignorance of alteration may recover back the amount. Daniels Neg. Inst. 1369; Fraker v. Little, 24 Kan. 598; Fraker v. Cullum, 21 Kan. 555. Defendants counterclaim was proper. McGregor v. Auld, 21 N.W. 835; First Nat. Bank v. O'Connell, 51 N.W. 832. But if this payment was not a proper subject of counterclaim, plaintiff should have raised the question by demurrer and they have waived their right to object, by replying thereto. Campbell v. Jones, 25 Minn. 157; Walker v. Johnson, 9 N.W. 632; Lace v. Fixer, 19 N.W. 762.
OPINION
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 alleged 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, where upon 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 admissable. 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...
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