Greene. v. McAuley

• Decision Date: 07 January 1905
• Docket Number: 13,876
• Parties: F. F. GREENE. v. A. T. MCAULEY
• Court: Kansas Supreme Court

79 P. 133

70 Kan. 601

F. F. GREENE. v. A. T. MCAULEY

No. 13,876

Supreme Court of Kansas

January 7, 1905

Decided January, 1905.

Error from Johnson district court; WINFIELD H. SHELDON, judge.

Judgment reversed and cause remanded.

SYLLABUS

SYLLABUS BY THE COURT.

1. PROMISSORY NOTE--Real Party in Interest. Where a promissory note is sued upon by the holder, to whom it has been unconditionally assigned by the payee, a complete defense on the sole ground tat the plaintiff is not the real party in interest can only be established by proof of facts showing that a payment to him would not be a protection to the defendant against further liability on the note.

2. PROMISSORY NOTE--Holder Held to Have the Right to Sue. T., being the owner of a tract of land, permitted G. to control it and rent it in his own name to secure him against loss through having signed a bond as surety for T. G. accordingly leased the land to S., who agreed to pay him rent. After the release of G. from liability on the bond he agreed with T. to procure from S., in satisfaction of the rent due, two notes then owned by S., and to turn them over to T. G. obtained the notes from S. in satisfaction of the claim for rent, taking an assignment to himself, and without the consent and against the objection of T. brought action upon them against their maker, M. Held, That M. would have been protected by a payment to G., and cannot defeat a recovery on the ground that the plaintiff is not the real party in interest.

3. PROMISSORY NOTE--Agreement of Payor and Payee Immaterial. Under the circumstances stated in the preceding paragraph the conclusion announced would not be affected by the further assumption that T. had agreed with M., without any consideration sufficient to support a contract, to accept a less sum than their face in full satisfaction of the notes.

J. P. Hindman, for plaintiff in error.

Chancy B. Little, and C. W. Gorsuch, for defendant in error.

MASON J. All the Justices concurring.

OPINION

MASON, J.

F. F. Greene sued A. T. McAuley on two notes for $ 130 each, executed by McAuley to H. E. Stearns, and assigned in writing by Stearns to the plaintiff. Defendant admitted the execution and assignment of the notes, but in his answer alleged that they belonged to Mrs. Laura Sims Thomas; that plaintiff did not own them, and had no right to maintain an action upon them. The case was submitted to a jury upon the issue of the ownership of the notes and a verdict was given for the defendant. A judgment followed from which the plaintiff prosecutes error. The principal, and indeed the only substantial, question involved is whether the evidence given in behalf of the defendant had any tendency to establish a defense.

The plaintiff, while denying that any person except himself had any interest whatever in the notes, contends that the case is controlled by the principle that an action upon a note may be maintained by one who holds the legal title, although without beneficial interest, and that, as he had possession of the notes and they were assigned to him by the payee, he was entitled to enforce their payment, whatever claim any third person might have had against him with reference to them. The defendant claims that the principle invoked does not apply to the facts of the case. The circumstances out of which the litigation grows are peculiar and an understanding of the precise question of law presented requires that they be stated in some detail.

In 1895 Greene signed a bond as surety for Mrs. Thomas in a proceeding in error in the court of appeals brought to reverse a money judgment rendered against her in the district court. To indemnify him against any loss by reason of his having signed such bond Mrs. Thomas authorized him to control a quarter-section of land owned by her, and to retain the rents for his security until he should be released from liability. Soon afterward she made a further agreement with him, in consideration of his advancing her money for the payment of taxes, that if she should "win" her case in the appellate court she would deed to him an eighth interest in this quarter-section. In pursuance of the arrangement described Greene, in his own name, rented the land for the season of 1897 to Stearns. Stearns sublet it to McAuley and received from him for the year's rent the two notes in issue. In October, 1898, a decision was rendered by the court of appeals modifying the judgment against Mrs. Thomas by reducing the amount, but not sustaining all her contentions. Greene was relieved from further liability upon the bond, and in the following January he and Mrs. Thomas had a settlement, it being found that she was indebted to him in the sum of $ 125, for which she gave him a demand note, which was paid January 31. So far there is a substantial agreement as to facts; but there is a radical conflict as to another branch of the settlement referred to. Greene testified that it included an agrement that, in lieu of the one-eighth interest in the land which was to have been deeded to him in the event of Mrs. Thomas's winning her case in the court of appeals, he was to have the rent of the place for 1897, and that, as his tenant, Stearns, had sublet to McAuley and taken his notes, Greene should get these notes from Stearns in satisfaction of the debt owed by Stearns for the year's rent, and should retain them as his own. Mrs. Thomas testified as a witness for defendant that the note for $ 125 given by her to Greene was in full settlement of all demands whatsoever; that at the time of its execution he agreed that as soon as this note should be paid he would get the notes from Stearns and give them to her; and that therefore she was the real owner of the notes, and that Greene wrongfully detained them from her. On May 2, 1899, Stearns assigned the notes to Greene in discharge of his liability under his contract to pay rent.

There was evidence that Mrs. Thomas had agreed with McAuley to accept $ 130 in full satisfaction of both notes. It is not claimed that there was such a valid consideration for this agreement as to make it enforceable against the owner of the notes. Apparently the evidence was offered not for the purpose of reducing the amount of any judgment that might be rendered in favor of the plaintiff in this action, but to show wherein the defendant would suffer by being required to make payment to Greene rather than to Mrs. Thomas, and thereby to give him standing to question Greene's right of recovery. The jury accepted the testimony of Mrs. Thomas and rejected that of Greene, as is shown by their general verdict and by a number of special findings. The question presented therefore is this: Assuming that Mrs. Thomas's statements are true, and that Greene, after promising that he would get the notes from Stearns and give them to her, procured Stearns to assign them to him, and then wrongfully kept them, having obtained them from Stearns in lieu of the payment of rent which was owing for the use of land belonging to Mrs. Thomas, but which had been made payable to Greene in order to secure him against a liability from which he had now been released, do these facts constitute a defense in an action brought against the maker of the notes by Greene not only without the consent, but against the objection, of Mrs. Thomas?

In jurisdictions where, as in Kansas (Manley v. Park, 68 Kan. 400, 75 P. 557; Graham v. Troth, 69 id. 861, 77 P. 92), the holder of the naked legal title to a promissory note may sue upon it, even though he may be under obligation to account to some third person for the entire proceeds, it is often said that in such an action the defendant cannot challenge the plaintiff's right to maintain it, except by a showing of bad faith in the transaction. (Dyer v. Sebrell, 135 Cal. 597, 67 P. 1036, and cases cited; City Bank of New Haven v. Perkins, 29 N.Y. 554, 86 Am. Dec. 332.) In the decisions there is a somewhat singular lack of explanation, or illustration, as to just what might be considered bad faith in this connection. Doubtless the phrase is sometimes used with reference to a merely colorable transfer of title by the real owner to a stranger for the purpose of embarrassing the maker of the note in his defense (Marvin v. Ellis, 9 F. 367); but this example hardly meets the requirements of the situation, for it is also said that upon a showing that the plaintiff is only a nominal party, acting for the benefit of the real owner of the note sued upon, the defendant may avail himself of any defense that he could have interposed if he had been sued by the latter; and that his rights are protected, not by allowing him to question the plaintiff's capacity to sue, or by requiring the person finally interested to be made a party, but by permitting him to make his defense on the merits against the formal plaintiff. (Cottle v. Cole & Cole, 20 Iowa 481; Salmon v. Independent Rural School Dist., 125 F. 235; Village of Kent v. Dana, 100 F. 56, 40 C. C. A. 281; Dickinson v. Bull, 72 Ill.App. 75.)

One instance of a transfer in bad faith is presented in Sheldon v. Pruessner, 52 Kan. 579, 35 P. 201, 22 L. R. A. 709, where its purpose was to defeat the taxation of the note involved. Another is suggested in Sheridan v. Mayor, 68 N.Y. 30, where it was said: "It is not a case of mala fide possession which the defendant can avail itself of, as if a thief should bring an action upon a promissory note which he had stolen." In Daniel on Negotiable Instruments (vol. 2, 5th ed., § 1191) it is said:

"If it were shown that the plaintiff, upon...