J. R. Watkins Co. v. Lankford

• Decision Date: 13 April 1953
• Docket Number: No. 43415,43415
• Citation: 256 S.W.2d 788,363 Mo. 1046
• Parties: J. R. WATKINS CO. v. LANKFORD et al.
• Court: Missouri Supreme Court

Page 788

256 S.W.2d 788

363 Mo. 1046

J. R. WATKINS CO. v.LANKFORD et al.

No. 43415.

Supreme Court of Missouri, en Banc.

April 13, 1953.

J. Grant Frye and Gerald B. Rowan, Cape Girardeau, for appellant.

C. A. Powell, Dexter, for defendantT. J. Sanders.

HYDE, Judge.

This is an action on an account for merchandise sold to John Baker(one of the defendants sued herein) under the terms of a dealer's contract, payment of which was guaranteed by the other defendants as his sureties.The jury's verdict was against Baker for $640.34 without interest and in favor of the other defendants.On plaintiff's appeal, the Springfield Court of Appeals reversed and remanded with directions to enter judgment against all defendants for $640.34 with interest thereon at 6% from May 28, 1940.J. R. Watkins Co. v. Lankford, 250 S.W.2d 798.We transferred the cause on application of defendant Sanders.

Much of the evidence is set out in the opinion of the Court of Appeals.See also opinion on former appeal, J. R. Watkins Co. v. Baker, Mo.App., 236 S.W.2d 745.Defendants' evidence was that their signatures as sureties were obtained by fraud by Baker and Paul Corbin, who was with him when Sanders signed, saying the paper was only a recommendation.In the case of Sanders (who is the only defendant now contesting plaintiff's right to judgment) Baker and Corbin drove out to his home and found him in the driveway.Baker got out first and asked Sanders to sign (saying it was a recommendation) while Corbin remained in the car.(Baker said he had never read the document but took Corbin's word for what was in it.)Sanders said, after he had talked with Baker, 'he(Corbin) got out and said that he wanted me to sign this recommendation for Mr. Baker to sell Watkins' products and I said that I didn't have my glasses and couldn't read without them and I said that I didn't want to sign anything that would hurt me in any way and he said there was nothing there that would hurt me and that it was just a recommendation for Mr. Baker.'Sanders then signed without going into the house for his glasses.Baker's contract and the suretyship agreement where both printed on one long (legal size) sheet of paper.Defendants' evidence showed that Sanders could not read without his glasses, but had 20-20 vision with them.

Plaintiff's evidence was that it wrote letters dated March 28, 1939, to each of the sureties on Baker's contract (dated March 25, 1939 and terminating April 1, 1940) which were sent by registered mail with directions 'Deliver to addressee only.Personal receipt required.'The letter to Sanders said: 'We are pleased to inform you that we have received and accepted the Agreement of Mr. John Baker dated March 25, 1939, which you signed as surety, together with Louis Wilkerson and J. L. Lankford.'Plaintiff had a registered mail receipt, dated April 6, 1939, signed 'T. J. Sanders.'However, Sanders denied receiving the letter and said he did not think the signature on the receipt was his signature.We must, of course, consider that the jury found against plaintiff on the fact issues.

The first question is whether the fact that the suretyship agreement was fraudulently misrepresented to Sanders by the principal Baker, and also by Corbin, as only a recommendation, is any defense to plaintiff's action on the agreement.Of course, as authorities hereinafter referred to hold, that would be a defense if either Baker or Corbin were agents of plaintiff to make the contract.However, as hereinafter shown, defendants had no substantial evidence of such agency.The Court of Appeals followed its previous decision in General Motors Acceptance Corporation v. Holland, Mo.App., 30 S.W.2d 1087, 1090, in which it said in a similar case: 'The evidence fails to indicate that plaintiff had knowledge of such deception or the circumstances under which defendant signed the guaranty.It therefore should not be made to suffer the loss brought about by defendant's blind trust in another.The old equitable rule is applicable that, where one of two innocent parties shall suffer by reason of the fraud of a third person, the one who permits himself to be deceived and thus puts it in the power of such third person to defraud another should be the loser rather than the latter.'The great weight of authority is in accord with this statement of the rule.See50 Am.Jur. 1015, Sec. 170;Annotations66 A.L.R. 315, 71 A.L.R. 1278;Restatement of Security, Sec. 119;Restatement of Contracts, Sec. 477;24 Am.Jur. 904, Sec. 45;38 C.J.S., Guaranty, Sec. 32, p. 1172;4 Williston on Contracts 3573, Sec. 1248;Spencer on Suretyship, Sec. 55;40 Columbia LawRev. 1230.See alsoJ. R. Watkins Co. v. Oldfield, Mo.App., 168 S.W.2d 594, 595;J. R. Watkins v. Oldfield, 351 Mo. 894, 174 S.W.2d 142.

The rule is thus stated in Restatement of Security, Sec. 119: 'Where the surety by fraud or duress of the principal has been induced to become bound to the creditor, the fraud or duress is not a defense against the creditor, if, without knowledge of the fraud, he has extended credit to the principal on the security of the surety's promise or, relying on the promise, has changed his position in respect of the principal.'The following illustration is given: 'P induced S to sign an instrument guaranteeing an extension of credit by C to P. S had an opportunity to read the instrument but did not do so and relied upon P's representation that it was a letter of recommendation.P exhibited the instrument to C, who extended the credit without knowledge of P's fraud.S is liable to C.'That illustration fits this case completely.Sanders could have gone into his house, got his glasses and read the agreement before be signed it, or he could have had it read to him.There is no evidence that plaintiff had any knowledge of the alleged misrepresentations.Thus there are no facts in evidence to show that the general rule should not apply in this case.

Defendants rely on J. R. Watkins v. Thompson, 230 Mo.App. 482, 93 S.W.2d 1100andGate City National Bank v. Bunton, 316 Mo. 1338, 296 S.W. 375, 379.The facts in the Thompson case were very different as we pointed out in the Oldfieldcase, supra.174 S.W.2d loc. cit. 143.In the first place, 'the full debt sued for in this case was past due when defendant Watkins (surety therein) signed his name.'Thus plaintiff therein had not 'extended credit to the principal on the security of the surety's promise' as required by the rule stated in Sec. 119, Restatement of Security.Furthermore, the age and physical condition of the surety was very different as he was apparently an invalid afflicted with hardening of the arteries, heart disease, prostate gland and kidney trouble and was unable to read because of cataracts affecting both eyes.The real basis of the equitable rule applied in these cases is in the nature of an estoppel against the surety who had an opportunity to read the instrument but did not do so; and it is his negligence in failing to do what it was reasonable for him to have done that is the basis of the estoppel.Of course, this rule could not be applied to the same extent against a blind man, or an illiterate man who could not read, because he would have to rely on another to read it to him.See discussion in the Thompson case, 93 S.W.2d loc. cit. 1103, citing Daniel on Negotiable Instruments, Sec. 847.Thus the Thompson case is not authority for defendants' contention in this case.

In Gate City National Bank v. Bunton, supra, the suit was on Bunton's $25,000 note made to and held by the bank.It was endorsed on the back by the two defendants who contested their liability.Each was separately asked to endorse it by Bunton.On each occasion, Bunton exhibited a $5,000 note payable to the bank signed by him; then, after the prospective endorser had read it, while obtaining the pen from the desk for his signature, Bunton substituted the $25,000 note.While being endorsed on the back, the face of the note was not visible and neither endorser looked at the note again after endorsing it.The Court recognized the rule that, where one of two innocent parties must suffer by the act of a third, the one whose act enabled such third person to cause the loss must sustain it.However, the Court said: 'The liability, if any, of one, whose signature is obtained to a negotiable instrument in the manner in which defendants aver that theirs were obtained to the note in suit, arises solely from negligence, and not otherwise.If there was no negligence, there is no liability.'The Court held that, under the circumstances of that case, there was a jury question as to whether, in endorsing the note, the defendants were in the exercise of ordinary care.There negligence as a basis for estoppel was a jury question because the endorser had read the note once and the reasonable appearances were that he was endorsing the note he had read.The authorities overwhelmingly hold that is not true in a case like this where the surety did not even attempt to read the instrument at all before signing or delivering it, although there was...