Furst & Thomas v. Merritt

• Decision Date: 04 November 1925
• Docket Number: 330.
• Citation: 130 S.E. 40,190 N.C. 397
• Parties: FURST & THOMAS v. MERRITT ET AL.
• Court: North Carolina Supreme Court

130 S.E. 40

190 N.C. 397

FURST & THOMAS v. MERRITT ET AL.

No. 330.

Supreme Court of North Carolina

November 4, 1925

Appeal from Superior Court, Orange County; Calvert, Judge.

Action by Frank E. Furst and another, trading as Furst & Thomas against A. D. Merritt and others. From a judgment for defendant Fowler, plaintiffs appeal. New trial.

Submission of defenses of fraud in factum and in treaty under single issue without drawing distinction between them held to require new trial.

Civil action to recover of A. D. Merritt, principal, and E. S Merritt and J. A. Fowler, sureties, the sum of $604.87 due by contract duly executed by A. D. Merritt and E. S. Merritt but which J. A. Fowler alleges: (1) That he never signed or authorized any one to sign for him, as he only agreed to sign a recommendation; and (2) that, if his name appear as surety on the instrument in question, the authorization of his signature was procured by false and fraudulent representations.

Upon the issues thus raised by the answer and pleas of J. A Fowler, the jury returned the following verdict:

"(1) Was the signature of J. A. Fowler to said guaranty procured by fraud and false representation, as alleged in the answer? Answer: Yes.

(2) Is the defendant J. A. Fowler indebted to the plaintiffs, Furst and Thomas, and if so, in what amount? Answer: Nothing."

Judgment on the verdict releasing the defendant J. A. Fowler from liability under the contract, from which the plaintiffs appeal, assigning errors.

Gattis & Gattis, of Hillsboro, for appellants.

Roberson & Whitfield, of Chapel Hill, and W. J. Brogden, of Durham, for appellees.

STACY C.J.

The plaintiffs are engaged in business at Freeport, Ill. They authorized A. D. Merritt by contract to act as their "salesman" or exchange agent for their goods and products in Durham county; but before the final execution and acceptance of said agreement, plaintiffs required the said A. D. Merritt to furnish two sureties who would guarantee the faithful performance of the contract on his part. E. S. Merritt signed as one of the sureties.

There is a sharp conflict in the evidence as to the representations and circumstances under which J. A. Fowler's name was affixed to said instrument.

Touching the authorization of his signature, the defendant, J. A. Fowler, testified as follows:

"About 5 years ago I met J. Y. Merritt and his son, A. D. Merritt, in a buggy in a road near my home. They stopped, and J. Y. Merritt asked me to sign a recommendation for his son so that he could work for some firm. I asked him if that was all it was, he said that was all it was, and that there would never be any hereafter to it. I said, 'If that is all it is, you can put my name down.' I cannot read, and I relied on the statement of J. Y. Merritt that the paper was only a recommendation. J. Y. Merritt did all the talking, and A. D. Merritt remained in the buggy beside him. I never knew the paper was a guaranty until I received a letter from plaintiffs terminating contract."

J. Y. Merritt testified for plaintiffs as follows:

"My son said he would have to get two sureties to sign the contract before he could go to work. He said he thought he would get Mr. Fowler and E. S. Merritt. We got in the buggy and started out to see them, and met Mr. Fowler in the road. I told him that my son had a job and needed two sureties to sign the contract before he could go to work. I told him all about it. He said to go ahead and put his name down. I did all the talking. We did not have a pen, so I waited until I got to Carrboro, and then signed J. A. Fowler's name to the contract. I told Fowler that I thought there would be no hereafter."

Cross-examination:

"I did not tell him it was a recommendation. * * * I told him it was a recommendation. * * * My son offered to read the contract to Fowler, and he said it was not necessary. I do not know whether my son took the contract out of his pocket or not; he had it in his pocket. I told Fowler what the contract was, that it was a security."

A. D. Merritt, for the plaintiffs, testified as follows:

"We met Mr. Fowler in the road, and my father did all the talking. I took the contract out of my pocket and offered to read it. He said it was no use, he could not read, and to go ahead and put his name down. My father told Fowler that there would be no hereafter to it. I do not think Fowler would have signed the contract if he had been told that it was an unlimited obligation to stand for my debts. I was to be exchange agent to sell the goods of plaintiffs in Durham county. The contract was sent to me to be signed by myself and two guarantors."

It will be observed that the defendant J. A. Fowler pleads fraud in the factum as well as fraud in the treaty. The difference between these two pleas becomes important in the instant case because of the presence and position of the plaintiffs, who contend that they are innocent third parties and in no way connected with the alleged fraud.

This difference has been obscured, to some extent at least, since the abolition in this jurisdiction of the distinctions between actions at law and suits in equity, but it should be remembered the abolition of the "forms of all such actions and suits" by the Constitution of 1868, art. 4, § 1, does not imply that the distinctions between law and equity have been abolished in North Carolina. The principles of law and the doctrines of equity remain the same, and are practically unaffected by this constitutional provision, the only change wrought being in the method of administering them, and, in some degree, the extent of their application. Waters v. Garris, 188 N.C. 310, 124 S.E. 334, and cases there cited.

Prior to the adoption of the Constitution of 1868, the execution of an instrument brought about by fraud in the factum could be avoided in an action at law, because void, while a deed or contract induced by fraud in the treaty, either in the consideration of it, or in the false representation of some matter or thing collateral to it, could be relieved against only by a suit in equity, because only voidable. McArthur v. Johnson, 61 N.C. 317, 93 Am. Dec. 593; Gwynn v. Hodge, 49 N.C. 168; Canoy v. Troutman, 29 N.C. 155; Reed v. Moore, 25 N.C. 310; Logan v. Simmons, 18 N.C. 13.

It was said by Pearson, J., in Devereux v. Burgwin, 33 N.C. 493, that:

"Under the plea of 'non est factum,' if the execution of the deed is proven, it cannot be avoided in a court of law by proof, that it was procured to be executed by means of falsehood and misrepresentation or other fraud. There must be fraud in the 'factum,' as by substituting one paper instead of the one intended to be executed, so as to show, that the party did not intend to execute the paper he was thus made to sign, seal and deliver as his deed."

In a court of law, the question was a naked one of deed or no deed--factum or non est factum. Gant v. Hunsucker, 34 N.C. 254, 55 Am. Dec. 408.

Speaking of the distinction between the two kinds of fraud, in Cutler v. Railroad, 128 N.C. 480, 39 S.E. 31, Furches, C.J., said:

"Frauds affecting the validity of deeds are of two kinds--fraud in the factum, and fraud in the treaty. This distinction, though not as material now as formerly, is still material in some cases. Medlin v. Buford, 115 N.C. 260 [20 S.E. 463]. Besides the importance of the distinction pointed out in Medlin v. Buford, it was important before the junction of legal and equitable jurisdiction in the same court, to determine the jurisdiction, as courts of law had jurisdiction of frauds in the factum, but not of frauds in the treaty which were cognizable alone in courts of equity. This made it important to determine, before commencing the action, whether it was fraud in the factum or fraud in the treaty, as the proper court in which to bring the action depended on this distinction. And while the distinction is important, it is not of that importance that it formerly was, as one is sure now to get into the right court, if there is fraud whether in the factum or in the treaty."

While this distinction between void and voidable deeds is no longer important for the purpose of determining the jurisdiction of the court which shall hear the case, it is still highly important in its consequences to innocent third persons, "because nothing can be founded upon a deed which is absolutely void; whereas from those which are only voidable fair titles may flow." Somes v. Brewer, 2 Pick. (Mass.) 191, 13 Am. Dec. 406. Then, too, in certain instances, even in actions between the original parties and where the rights of innocent third persons are not involved, the rules of evidence may require an observation of the difference, depending on the relief sought, whether, for instance, the action be for reformation or cancellation. Montgomery v. Lewis, 187 N.C. 577, 122 S.E. 374; Speas v. Bank, 188 N.C. 528, 125 S.E. 398. And in some cases the measure of damages may be different. Griffin v. Lbr. Co., 140 N.C. 519, 53 S.E. 307, 6 L. R. A. (N. S.) 463.

As a general rule, it may be said that fraud in the factum arises from a want of identity or disparity between the instrument executed and the one intended to be executed, or from circumstances which go to the question as to whether the instrument, in fact, ever had any legal existence, as, for example, where a grantor intends to execute a certain deed and another is surreptitiously substituted in the place of it (Nicholls v. Holmes, 46 N.C. 360), or where a blind or illiterate person executes a deed when it has been read falsely to him on his request to have it read (2 Blk. Com. 304; Manser's Case, 2 Coke's Rep. 3), or where some trick, artifice or imposition, other than false representation as to the meaning and...