Otto v. Halff

• Decision Date: 23 March 1896
• Citation: 34 S.W. 910
• Parties: OTTO et al. v. HALFF et al.
• Court: Texas Supreme Court

34 S.W. 910

OTTO et al. v. HALFF et al.

Supreme Court of Texas.

March 23, 1896.

Error to court of civil appeals of Fourth supreme judicial district.

Action by Louis Otto and another against H. Halff & Bro. to cancel a note, and to restrain defendants from disposing of collateral thereto. From a judgment of the court of civil appeals affirming the judgment of the district court (32 S. W. 1052), plaintiffs bring error. Reversed.

McNeal, Harwood & Walsh, for plaintiffs in error. Lewy & Sehorn, for defendants in error.

BROWN, J.

On December 18, 1893, L. Otto was indebted to M. Halff & Bro., on open account, for merchandise sold him, to the amount of $2,635.11, to become due in January and February, 1894. On that date defendants agreed with J. A. Otto, who represented L. Otto, as his agent, on terms of settlement, as follows: L. Otto to pay cash $297.41, and to give a note for $2,337.70, to become due November 1, 1894, to bear interest from date at 10 per cent. per annum, to be secured by a deposit with the defendants of four notes of M. and R. J. Ellis, payable to L. Otto, for the sum of $513.40 each. L. Otto paid the cash payment, and one of the defendants wrote the note provided for, but, by mistake, made the interest payable from maturity. By subsequent agreement the maturity of the note was extended to January 1, 1895. When Halff & Bro. ascertained the mistake in the note, reading "interest payable from maturity," instead of "from date," one of the firm, who had written the note, drew a line through the word "maturity" and wrote the word "date." This was done with no intent to defraud Otto, but the party making the change at the time believed that he had the legal right to so change the note as to make it express the contract as it was actually made between the parties. Two payments were made upon the note,—one dated January 9, 1894, of $234.10; the other, October 24, 1894, of $204.80. J. A. Otto was the agent of L. Otto in this transaction, and was his general agent in the management of the business. J. A. Otto also signed the note. The foregoing are substantially the findings of the district court, which were adopted by the court of civil appeals, with this modification: "That the testimony introduced on behalf of appellants shows that the collaterals were offered and given to appellees in order to secure the account and its extension, and that it is not strictly accurate to state, as the collaterals imply, that they were given to secure the note." The note given by L. and J. A. Otto recites that L. Otto have deposited with the payees, Halff & Bro., as collateral security for the payment of this note, and also all other present or future demands, of any kind, of said bank against the undersigned, due and undue, the following property (then proceeds to describe the five notes signed by Maggie Ellis and R. J. Ellis), and it empowers the payees to sell the notes so deposited as collateral, without notice, upon the failure of the payors in the said note to make payment thereof. This suit was commenced by Louis and J. A. Otto against Halff & Bro., to enjoin them from disposing of the collateral notes, and to cancel the note above described, made by the said Louis and J. A. Otto to Halff & Bro. Halff & Bro. filed a plea in the nature of a cross bill, setting up the original account, confessing the change made in the note, setting up the agreement as to interest, and alleging that the change was made for the purpose of making the note conform to the agreement, and asking judgment upon the original indebtedness, less the credits thereon. Upon trial before the court without a jury, a judgment was rendered canceling the note made by Louis and J. A. Otto to Halff & Bro., and giving judgment in favor of M. Halff & Bro. against Louis Otto for the amount of the original account, less the payments made, to bear 6 per cent. interest from the date of the judgment, and in favor of the said Louis and J. A. Otto for all costs of suit. The judgment of the district court was affirmed by the court of civil appeals. 32 S. W. 1052.

Plaintiffs in error assign the following grounds as cause for reversing the judgment of the court of civil appeals: First. That the court of civil appeals erred in refusing to find additional facts as requested by the appellants. This court has no means of correcting such error, if it be such, upon writ of error to this court. Second. The plaintiffs in error complain that the findings of the district judge were made and filed without the request of either party to the suit. We think that the court of civil appeals properly disposed of this question. Third. That the court of civil appeals erred in finding that the change made by Halff & Bro. in the note was not done fraudulently. This is a question of fact, upon which there was evidence sufficient to sustain the finding of the court, and it cannot be reviewed by this court. Fourth. That the court of civil appeals erred in holding that, although the original note was void by reason of the alteration made therein, it was competent for the defendants, Halff & Bro., to recover the original consideration for which the note was given. Fifth. The court of civil appeals erred in holding that the collateral deposited by Louis Otto to secure the note made by him to Halff & Bro. should be held for the satisfaction of the consideration of said note; that is, the account due by Otto to Halff & Bro.

It is conceded by the defendants in error that the alteration made by Halff & Bro. in the note given to them by L. and J. A. Otto was material, and that the effect of such alteration was to render the note invalid for any purpose. It is unnecessary to cite authorities to sustain this proposition, as it is well settled, and denied by but few courts. But it is claimed on the part of the plaintiffs in error that, the note being rendered invalid, Halff & Bro. could not recover upon the original consideration, because (1) the giving of the note operated to satisfy the pre-existing debt; (2) if that be not true, then that, the alteration of the note having destroyed it, the law visits upon them the forfeiture of the original debt, although the alteration was made without any fraudulent intent, and for the purpose of making it conform to the intention of the parties, which intention was not expressed by reason of a mistake of the person who prepared the note, in failing to strike out the word "maturity" and insert "date," showing the time from which the note should bear interest.

In support of the proposition that the execution of a note by a debtor operates to satisfy the pre-existing indebtedness for which the note is given, we are referred to the case of Wilkinson v. Thulemeyer, 44 Tex. 470, in which it is said: "If the suit be treated as having a written account for a basis, then the execution of the notes was a satisfaction of the account, and a recovery could not be had on it. If the notes were of any validity at all against Wilkinson, they certainly closed the account." An examination of that case will show that the question was not before the court,—the real issue being that the account was barred by the statute of limitation, the suit being upon that,—and that the note was not declared upon in the petition. That case, therefore, is not authority upon this question. The rule is established by the great weight of authority in England and the courts of the American states that where a debt exists, and a note is given therefor by the debtor, the right of action is suspended upon the original consideration until the note becomes due, and if it is unpaid at that time the creditor may elect to sue upon the original indebtedness, or upon the note, unless the note was accepted as payment of the pre-existing debt. If suit be brought upon the original consideration, and the note be negotiable, the plaintiff must show that it has not been transferred and is lost or destroyed, or he must produce and surrender it. 2 Daniel, Neg. Inst. § 1272; Stedman v. Gooch, 1 Esp. 3; Price v. Price, 16 Mees. & W. 231; Greenwood v. Curtis, 6 Mass. 358; Watkins v. Hill, 8 Pick. 522; Insurance Co. v. Allen, 11 Mich. 501; Matteson v. Ellsworth, 33 Wis. 488; Morrison v. Welty, 18 Md. 169; Muldon v. Whitlock, 1 Cow. 290; Hawley v. Foote, 19 Wend. 516; Frisbie v. Larned, 21 Wend. 450; Cole v. Sackett, 1 Hill, 516; Hughes v. Wheeler, 8 Cow. 77; Burdick v. Green, 15 Johns. 247; Putnam v. Lewis, 8 Johns. 389. Nothing in the evidence shows that there was any agreement or understanding that the note given by L. and J. A. Otto should be accepted as a payment of the original account. The account, therefore, was not discharged or satisfied by the execution of the note, but the right of action of Halff & Bro. was thereby suspended until the date named for the payment of the note; and the maker of the note having set up the invalidity of that instrument, and sought to cancel it, Halff & Bro. had the right to recover upon the original consideration, unless they are deprived of that right by making the change in the note. The plaintiffs in error cite many authorities to support the contrary view, but, upon a careful examination of them, we think that they are not in point, being cases in which the questions now before the court were not involved. In the cases cited, there are expressions of the courts which might be construed to support the proposition of plaintiffs in error, but, considered in reference to the...