Kennedy v. Hudson

• Decision Date: 18 June 1931
• Docket Number: 3 Div. 960.
• Citation: 138 So. 282,224 Ala. 17
• Parties: KENNEDY v. HUDSON.
• Court: Alabama Supreme Court

138 So. 282

224 Ala. 17

KENNEDY v. HUDSON.

3 Div. 960.

Supreme Court of Alabama

June 18, 1931

Rehearing Denied Oct. 15, 1931.

Further Rehearing Denied Dec. 17, 1931.

Appeal from Circuit Court, Montgomery County; A. E. Gamble, Judge.

Action by A. M. Kennedy against R. F. Hudson. From a judgment for defendant, plaintiff appeals.

Reversed and rendered.

Ball &amp Ball, of Montgomery, for appellant.

Steiner Crum & Weil, of Montgomery, for appellee.

THOMAS J.

The suit grew out of the indorsement of a promissory note and the assignment of an alleged mortgage on real property securing the same.

The assignment of Hudson to Kennedy, indorsed on the mortgage was "for and in consideration of the sum of Twelve Hundred and fifty dollars to me this day in hand paid by A. M. Kennedy, the receipt of which I do this day acknowledge and I do hereby transfer and assign to the said A. M. Kennedy that certain debt, note and mortgage, as herein described, and for the same consideration and without recourse on me, I do hereby grant, bargain, sell and convey unto the said A. M. Kennedy their heirs and assigns all of my right, title and interest in and to the real estate described in the within mortgage"; and duly acknowledged before a notary public. It is not ambiguous, and included the note and mortgage on like consideration and limitation. However, the evidence, if it be looked to on this point, supports the same intention and result. The note is: "Endorsements: For value received I hereby transfer this note to A. M. Kennedy. R. F. Hudson. Extended 12 mos to 12/28/28." This notation of extension we judicially know to have been "December 28, 1928," and will be taken and considered with the indorsement on the mortgage. The sale, conveyance, and assignment were one transaction, and are considered together in the ascertainment of the true intent of the contracting parties. The transfer of the note and mortgage was qualified. Section 9064, Code; Shows v. Jackson, 215 Ala. 256, 110 So. 273; Faulkner v. Fowler, 201 Ala. 685, 79 So. 257.

Did or did not this indorsement and transfer of the note or mortgage import and vouch for the genuineness of same?

The suit was for recovery of the price paid for the transfer and assignment of the non-negotiable chose in action, and the pleading was in short with leave to give in evidence all matters that may be specially pleaded. There are citations in briefs of counsel to the Negotiable Instrument Act. Sections 9064, 9091, 9141, Code. The due date of the instruments in question was December 28, 1924, and the transfer and assignment was of date of March 5, 1926. If the cited sections of the Negotiable Instrument Act be laid out of consideration as to said transfer and assignment of said choses in action, for that the transfer was after the law day thereof, and as not affecting the right of transferor and transferee, the general rule of the transfer of such instruments would prevail in the absence of statutory provisions. Many authorities are collected by Mr. Brannan in support of his observation that "this act does not affect the rights of parties to non-negotiable instruments." Brannan's Negotiable Instruments Law Ann. p. 1.

The provisions of our statute, section 9226 et seq., Code, that relate to assignments of nonnegotiable instruments, "Liability and Mode of Charging Indorsers or Assignors of Bills and Notes or Contracts Not Negotiable," contain the provisions that all contracts assigned by writing which are not governed by the commercial law, when the amount due exceeds $100, in order that the indorser or assignor be charged, suit must be brought against the maker to the first court to which suit can be properly brought after making the indorsement or assignment (section 9226, Code); unless suit is waived by written consent (section 9227, Code); or there is the required statutory excuse for not suing "the maker" (section 9228, Code); and the provision that all assignments or indorsements in the writing "of contracts" which are not governed by the commercial law, "whether regular or irregular, must be construed as within the meaning of the last three sections, unless the contrary clearly appears from such assignment or indorsement" (section 9229, Code); and all bonds, contracts, and writings for the payment of money or other thing, or the performance of any act or duty, are assignable by indorsement so as to authorize an action thereon "by each successive indorsee." Section 9231, Code.

If we may look to the rule of law generally obtaining in such matter, it may be noted that in Brannan's Negotiable Instruments Law (4th Ed.) p. 605, is the observation: "The right of the purchaser of a worthless or unenforceable instrument to rescind the purchase for fraud, misrepresentation, or mutual mistake of fact is independent of his right against the seller on an implied warranty. It depends on common-law principles of rescission, and may exist on grounds which do not create any liability for implied warranty under sec. 65, just as the similar right of the purchaser of a chattel to rescission for fraud, misrepresentation, or mistake, is not coextensive with his remedies under the Uniform Sales Act upon implied warranties.

"(a) The transferor by delivery of a forged note is not released from liability as warrantor by the act of the transferee in receiving interest from the alleged maker and extending the note, without the consent of the transferor, all the parties being still in ignorance of the forgery. Cluseau v. Wagner, 126 La. 375, 52 So. 547. [We interpolate this was under the statute, Civil Code La. Art. 2646.]

"Where a check on which the payee's indorsement was forged has been several times transferred by indorsement, each indorsee may recover from his immediate indorser. Main St. Bk. v. Planters' Nat. Bank, 116 Va. 137, 81 S.E. 24. The court cited sec. 65, but as the indorsements were unqualified, it should have cited sec. 66.

"A dealer in real estate who sold to the plaintiff forged notes indorsed in blank by the payee was liable on an implied warranty of genuineness if he sold the paper as owner or as agent of an undisclosed principal, even though the defendant was ignorant of the forgery and made no representations to the plaintiff. Hunt v. Sanders, 288 Mo. 337, 232 S.W. 456."

The rule of general authorities is thus stated in 2 R. C. L. p. 627, § 37: "Even where the words 'without recourse' are added in an assignment of a chose in action, there still remains an implied warranty that the right transferred is what it purports to be, namely, that it is a valid and genuine obligation of the parties, based on adequate and sufficient consideration, and that the amount of money it calls for was owing, and unpaid at the time of the assignment. For the same reason the assignment of a right of action implies a warranty that it was not invalid in its inception by reason of its having been procured through fraud and deceit, and that it is not affected with usury. Since a warranty of title is implied on the sale of a non-negotiable chose in action, the assignee, if it is a nullity, is entitled to recover the price, although the seller was innocent of any fraud, and ignorant of the defect."

The general statement in 4 Cyc. page 82 is: "In the absence of an express warranty, the assignor of a chose in action, for a valuable consideration, impliedly warrants to the assignee that the chose assigned is a valid, subsisting obligation in his favor against the debtor to the extent to which it purports to be such. If the assigned chose is invalid then the warranty is broken as soon as it is made, and the assignee need not wait until the maturity of the chose, but may sue the assignor thereon at once, and need not return the assigned chose. The measure of the assignee's damages for breach of such warranty is, generally, the amount he paid the assignor for the chose."

The decision in Young v. Perry, 187 Ala. 122, 65 So. 817, 52 L. R. A. (N. S.) 1146, contains excerpts to like effect, from 2 Randolph's Comm. Paper, § 913, and 2 Daniel's Neg. Instr. § 1314. See, also, vol. 1, § 675.

Such is the rule in Georgia, Illinois, Iowa, Kentucky, New York, and Vermont. The rule in Pennsylvania, Virginia, and West Virginia is to the effect that, if the assignment is without recourse, no warranty will be implied. Flynn v. Allen, 57 Pa. 482; Crawford v. McDonald, 2 Hen. & M. (Va.) 189; Houston v. McNeer, 40 W.Va. 365, 22 S.E. 80.

The text of 5 Corpus Juris, pp. 968, 970, and 971, supported by many authorities, is:

"Where the assignment is without recourse, according to some authorities, no warranty of title or genuineness is implied, and, in the absence of fraud, the assignor is not liable to the assignee; but in other cases it has been held that the assignor without recourse is liable upon an implied warranty that the chose is a valid and subsisting debt, and that the only effect of the qualification of his assignment is to relieve the assignor from responsibility for the solvency of the debtor."

"In Maxfield v. Jones, 106 Ark. 346, 350, 153 S.W. 584 (where the written contract of assignment stated in express terms that the assignment was 'without recourse' on the assignor, and that it was a transfer merely of all of the right of the assignor in and to the claim. 'This form of assignment relieved the assignor of any liability to plaintiffs for the failure to realize on the claim'); Coffman v. Allin, Litt. Sel. Cas. (Ky.) 200; Flynn v. Allen, 57 Pa. 482; Crawford v. McDonald, 2 Hen. & M. (12 Va.) 189."

See Strong v. Leoffler, 85 Ill. 73, a tax receipt that was forged; Hunt v. Burk, 22 Ga. 129, illegal contract; Tyler v. Bailey, 71 Ill. 34, counterfeit land warrants; McCormack v. Reece, 3 G. Greene (Iowa) 591,...