Liddell v. Crain

• Decision Date: 04 June 1880
• Docket Number: Case No. 4072.
• Citation: 53 Tex. 549
• Court: Texas Supreme Court
• Parties: LIDDELL, JOHNSON & GARMANY v. JASPER CRAIN ET AL.

53 Tex. 549

LIDDELL, JOHNSON & GARMANY

v.JASPER CRAIN ET AL.

Case No. 4072.

Supreme Court of Texas.

Jun. 4, 1880.

ERROR from Lamar. Tried below before the Hon. R. R Gaines.

Suit brought by plaintiffs in error May 17, 1875, against Jasper Crain, Silas Crain, J. C. Schenck, W. B. Wright and H. D. McDonald, to cancel a note executed by plaintiffs December 10, 1874, to Jasper Crain and Silas Crain, or order for $787.50, due December 25, 1875, drawing ten per cent. interest from date; which note plaintiffs alleged was procured by fraud, and the consideration had wholly failed, because the property sold plaintiffs, and which was the consideration of the note, was incumbered by two certain deeds of trust, made by the firm of Crain & Co., composed of Schenck, Jasper Crain and Nowell.

Defendants answered by general demurrer and general de nial July 5, 1875.

Defendants Wright and McDonald answered October 15, 1875, alleging that the note sought to be cancelled had been placed in their hands for collection and disclaimed any interest in the suit. On the same day, defendant J. C. Schenck filed a cross bill, in which he alleged that the note sought to be cancelled was transferred to him on the 20th of February, 1875, by Jasper and Silas Crain, as collaterals to secure a note executed by Jasper Crain to him on that day for $500; that he was an innocent holder of the $787.50 note in due course of trade for a valuable consideration, without notice of any defect therein.

November 11, 1878, the case was tried without a jury, and judgment was rendered in favor of J. C. Schenck against appellants for $684.66, drawing ten per cent. interest from date, as the amount of his $500 note and interest; and in favor of plaintiffs against Jasper and Silas Crain, cancelling the excess of their note over and above that sum, adjudging all the costs against plaintiffs and Jasper and Silas Crain.

The note sought to be cancelled recited that it was given in consideration of Crain's one-half interest in a gin and grist mill, which was proved on the trial.

At the time the property was sold by Jasper Crain to plaintiffs, and the $787.50 note executed, the property was incumbered by two deeds of trust, one to A. Cate, trustee, to secure A. S. Pettigrew & Co. in the purchase money for the same, and the other to secure a debt to Mrs. E. L. Aaron, both recorded in Lamar county, where the property was situated.

The deeds of trust were executed by the firm of Crain & Co., which was composed of Jasper Crain, defendant, J. C. Schenck and one W. H. Nowell.

The property was sold under the deeds of trust the first Tuesday in June, 1875, and did not sell for enough to pay the debts secured thereby.

The property for which the note sought to be cancelled was given, was purchased from A. S. Pettigrew & Co. by the firm of J. Crain & Co. Jasper Crain, one of the firm, obtained the note from plaintiffs by representing that the property was “all right;” and as to him the court adjudged the note invalid.

Hale & Scott for plaintiffs in error.

I. The court erred in rendering the judgment for the amount of the $500 note, when, as the record shows, it was given for an antecedent and pre-existing debt, and would not, therefore, be sufficient consideration to make defendant Schenck an innocent holder of the note for $787.50. The $500 note executed to Schenck by Jasper Crain was for a debt owing to him prior to that time. Pasch. Dig., art. 221; Dresser v. Missouri, etc., R. R. Const. Co., 3 Otto, 94;Weaver v. Borden, 49 N. Y., 291;Bay v. Coddington, 20 Johns., 637;Wardell v. Howell, 9 Wend., 174;32 Tex., 308;Spurlock v. Sullivan, 36 Tex., 516.

II. The plaintiffs having recovered ??dgment cancelling all of their $787.50 note except enough to pay the $500 note and interest to Schenck, they should have recovered all of their costs. The costs were all adjudged against plaintiffs and Jasper and Silas Crain. Judgment was rendered in favor of plaintiffs, cancelling all of their note for $787.50, except enough to satisfy the $500 note and interest. 2 Daniel's Ch. Pr., 990, 1408.

III. The court erred in not rendering judgment over against the defendants Jasper and Silas Crain, in favor of these plaintiffs, upon their prayer for general relief, for the amount of judgment given in favor of defendant Schenck. Plaintiffs' petition and amended petition was in the nature of a bill in equity to cancel the $787.50 note, for fraud and failure of consideration, and they pray for general relief. Pasch. Dig., art. 1410; Hipp v. Huchett, 4 Tex., 22; Trammell v. Watson, 25 Tex. Sup., 216; 1 Daniel's Ch. Pr., 378, 379, and note 1.

IV. The court should have first adjudicated the right of defendant J. C. Schenck against Jasper Crain on the $500 note before rendering judgment against plaintiffs on the collateral note. Defendants Jasper Crain and J. C. Schenck were both before the court. The $500 note was fully set out and described in Schenck's cross bill, and the same was in evidence. Pasch. Dig., art. 1410.

V. The court should have granted a new trial in favor of plaintiffs on account of newly discovered evidence. Plaintiffs moved for a new trial on the ground of newly discovered evidence, to the effect that Jasper Crain would testify on another trial that the $500 note from him to Schenck was given for his (Schenck's) interest in the same mill and machinery for which the $787.50 note was given; that it was wholly without consideration, and procured by the fraudulent representations of said Schenck and J. H. Nowell, to the effect that the A. S. Pettigrew & Co. and Aaron debts had been paid off and the property was clear. Plaintiffs say they knew nothing of this testimony until after the trial. The affidavit of the witness to that effect was written and read to him by E. L. Dohoney, plaintiffs' attorney. He assented to its correctness, and agreed to sign and swear to it, but subsequently refused to do so, saying he had been mistreated, that the statements in the affidavit were true, and he would so testify upon another trial. Dean v. Borden, 15 Tex., 300.

Dudley & McDonald for defendant in error.

I. If Schenck was otherwise a bona fide holder for value of the note obtained before maturity, the recitation in the note would not be notice to him that it referred to the same property upon which he had previously, as a member of the firm of J. Crain & Co., joined in giving a deed or deeds of trust, for the reason that the doctrine “that a knowledge of circumstances sufficient to put a prudent man upon inquiry is notice,” does not apply to the purchaser of negotiable paper; proof of bad faith will alone affect him.

II. The deeds of trust being on record and being constructive notice to all the world, the statements made by Crain did not operate as a fraud upon plaintiffs, and said note could not legally have been avoided even as to Crain; and the judgment of the court cancelling said note as to Crain was not warranted by the evidence, but not affecting the rights of this defendant in error, it is not complained of. Jackson v. Stockbridge, 29 Tex., 394; 1 Story's Eq., secs. 199, 200; Kerr on Fraud and Mistake; Bump's Am. Ed., pp. 96, 100 and 103, last paragraphs on each page.

III. Admitting for the sake of the argument alone, that Schenck, when he obtained said note, knew that it was given for an interest in property which he had previously joined in incumbering, and that plaintiffs could avoid said note as to Jasper Crain, still Schenck held the same by a valid title as a bona fide holder for value obtained before maturity, because it represented Crain's equity of redemption in the property, which he had a perfect right...