Leekley v. Short
| Decision Date | 20 June 1933 |
| Docket Number | No. 41855.,41855. |
| Parties | LEEKLEY v. SHORT et al. |
| Court | Iowa Supreme Court |
OPINION TEXT STARTS HERE
Appeal from District Court, Butler County; M. F. Edwards, Judge.
An action in equity to foreclose a real estate mortgage and for judgment upon the note against the makers and against an indorser “without recourse” under implied warranties claimed to exist under section 9525 of the 1931 Code. A motion to dismiss the petition was sustained and an order and judgment of dismissal entered. Plaintiff appeals.
Affirmed.
Howard L. Bump, of Des Moines, for appellant.
Lloyd H. Williams, of Des Moines, for appellees I. E. and Erma Short and Iowa Auto Market.
Thomas & Loth, of Fort Dodge, for appellee Ella B. Ward.
This appeal involved only issues between the plaintiff-appellant, Eleanor H. Leekley, and the defendant-appellee Ella B. Ward. A demurrer or a motion to dismiss plaintiff's petition was sustained. The plaintiff refusing to plead over and electing to stand on her petition, final judgment was entered, dismissing the petition with costs. From such judgment this appeal is prosecuted.
Division 1 of plaintiff's petition is in the ordinary form of a suit in foreclosure, and alleges that on the 5th day of June, 1931, the defendants I. E. and Erma Short executed and delivered to Ella B. Ward a promissory note for $10,000 due March 1, 1936; that said note was secured by mortgage upon 270 acres of farm land in Butler county, Iowa; said mortgage also pleading the rents, issues, and profits arising from said real estate; that on or about the 1st day of August, 1931, the said plaintiff purchased from the said Ella B. Ward the said note and mortgage and paid therefor in property reasonably worth $10,000, and $208 in cash. The said Ella B. Ward indorsing the said note as follows: “Without recourse on me pay to the order of -----.” At the same time the said Ella B. Ward executed a written assignment to the said plaintiff, assigning the said note and mortgage; said written assignment being made ““without recourse.” Subsequent to the execution and delivery of the said note and mortgage and the assignment thereof, the said I. E. and Erma Short transferred the title of the real estate involved to the Iowa Auto Market. That the semiannual installment of interest and the taxes due September 1, 1931, had become delinquent and remained unpaid; that the makers of said note and mortgage and the title holder of the real estate had failed to keep the property insured for the sum of $4,000 as provided in said mortgage, and by reason of said delinquencies, the plaintiff elected to declare the whole amount of said mortgage and note due and payable. The petition further alleges that the said real estate is not worth the sum of $10,000 and is not worth more than $6,500; that the crops raised upon the premises during the year of 1931 and belonging to the landlord, or title holder, consists of 500 bushels of corn, and the rent of the pasture land for the same period amounts to $200; that the buildings and fences are in poor repair and the property will not sell at sheriff's sale for more than $6,500; that the defendants I. E. and Erma Short are insolvent and were insolvent at the time the note and mortgage were executed.
Division 2 of plaintiff's petition restates the facts contained in division 1 and in addition thereto states that the said Ella B. Ward knew at the time she indorsed said note and assigned said mortgage to plaintiff that the Shorts were insolvent and that the note could not be collected from them, and that she further knew that the real estate was not of the value of $10,000 and was of much less value; that plaintiff relied upon the warranties provided by law that Ella B. Ward, transferring the negotiable instrument by delivery or qualified indorsement, had no knowledge of any fact that would impair the validity of the instrument or render it valueless.
Plaintiff prays for the appointment of a receiver to take charge of the real estate; asks judgment against I. E. and Erma Short and Ella B. Ward for the amount due upon said note and mortgage, and statutory attorney fees, interest, and costs, and asks that said mortgage be foreclosed as by law provided.
To this petition the defendant Ella B. Ward filed a motion to dismiss upon the following grounds: (1) That the petition shows upon its face that plaintiff has no cause of action against this defendant; (2) that this defendant indorsed the note declared upon “without recourse,” and assigned the mortgage securing the same “without recourse”; (3) that the petition shows that this defendant did not breach any implied or statutory warranty in that the petition fails to allege that the note is invalid or that the note is valueless, but, on the contrary, alleges that it is valuable; (4) that there is misjoinder of parties defendant; and (5) that there is misjoinder of causes of action. The action against the principal defendants being in equity, and any demands against this defendant being cognizable only at law.
It will be noticed that no fraud is charged in the petition and the only proposition relied upon for reversal is the construction to be put upon section 9525 of the 1931 Code, which section is as follows:
“Every person negotiating an instrument by delivery or by a qualified indorsement, warrants:
1. That the instrument is genuine and in all respects what it purports to be.
2. That he has a good title to it.
3. That all prior parties had capacity to contract.
4. That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.”
[1] The appellant relies upon subdivision 4 of the above-quoted section, and her claim is that even though a note is transferred by a qualified indorsement, if the indorser knew that the note was of no value and that the person could not collect it, such indorser thereby perpetrated fraud upon the purchaser and obtained the money upon false pretense. The appellant contends in argument that the appellee knew she was selling a worthless note to the plaintiff, and she cannot limit plaintiff's recovery against fraud by a qualified indorsement of the note. The plaintiff's petition is a complete answer to this contention. The petition alleging that this particular note was not worth more than $6,500 and ““will not sell at sheriff's sale for an amount in excess of $6,500.00.” The conclusion necessarily follows that the note was not valueless and that the defendant had “no knowledge of any fact which would impair the validity of the instrument or render it valueless.” It also follows that there was no breach of an implied warranty that the note was not “valueless.” The fact that the note was not worth par does not render it valueless or impair its validity.
The section of the statute under consideration is a part of the Negotiable Instrument Law known as chapter 424 of the 1931 Code, and the question here presented is one of first impression in this court.
The warranties implied by the statute, accompanying an indorsement without recourse, do not include the solvency of the maker, but are restricted to matters affecting the legal enforceability of the paper; and, without an allegation of fraud or deceit, there can be no recovery thereon based upon the insolvency of the maker or his inability to pay.
The appellant cites several cases from other jurisdictions which she claims sustain her position in this case. We will notice some of them.
In the case of Marietta Fertilizer Co. v. Beckwith, 4 Ga. App. 245, 61 S. E. 149, 152, fraud was involved and not a breach of any warranty. The selling agent of the note in question in that case falsely represented to the purchaser that the note was executed by a “Mr. McCullough who * * * ‘lived two or three miles down the road,”D’ while as a matter of fact it was signed by a “Mr. McCullough” who lived six miles in a different direction. Here was a plain instance of fraud and deceit and the decision was based entirely upon fraud. The Georgia statute is not identical with our own. In referring to indorsement of negotiable paper, that statute provides that the transferor of a negotiable instrument warrants to the purchaser that he has no knowledge of any fact which proves the instrument to be worthless either by insolvency, payment, or otherwise, and that court holds that if a breach of such statutory provision occurs that an action of deceit will lie. The Negotiable Instrument Act was not mentioned or involved in the decision.
The case of Spiegelman v. Eastman, 95 Cal. App. 205, 272 P. 761, 764, involved an action upon a note secured by a chattel mortgage which was indorsed and transferred without recourse. The note was originally for $28,000, installments had matured, but at the time of the transfer it bore fictitious indorsements purporting to show matured installments paid, while in fact nothing had been paid. The...
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