Palmersheim v. Gates

• Decision Date: 09 January 1923
• Docket Number: No. 140.,140.
• Parties: PALMERSHEIM v. GATES ET AL.
• Court: Wisconsin Supreme Court

179 Wis. 291

191 N.W. 567

PALMERSHEIM

v.GATES ET AL.

No. 140.

Supreme Court of Wisconsin.

Jan. 9, 1923.

Appeal from Circuit Court, Milwaukee County; Lawrence W. Halsey, Judge.

Action by Joseph Palmersheim against John Gates and Carl Hertel. From an order and judgment for plaintiff, the last-named defendant appeals. Order affirmed in part, reversed in part, and remanded.Charles T. Hickox, of Milwaukee, for appellant.

Waldemar C. Wehe and Leo J. Landry, both of Milwaukee, for respondent.

JONES, J.

This is an action on a promissory note for $5,700. The note was made by defendant Gates to the order of defendant Hertel, and was indorsed and delivered by Hertel to plaintiff. The complaint alleged the nonpayment and protest of the note at maturity.

The defendant Hertel pleaded by way of defense and counterclaim. In the defense it was stated that he had agreed to buy plaintiff's farm for $17,000, and had deposited with plaintiff the sum of $500 to bind the bargain; that on the 4th day of June defendant was about to abandon the bargain by reason of his inability to get sufficient funds to make the cash payment, and that he so informed plaintiff; that plaintiff, in order to induce defendant to carry out the bargain, agreed to take certain Liberty bonds, and to accept the note in suit, at their face value; that in reliance upon said agreement defendant delivered the bonds, made a cash payment of $1,500, and indorsed the note, and that subsequently the farm was deeded to defendant, plaintiff taking a mortgage for the balance due.

Defendant then alleged that by inadvertence and mistake he indorsed the note in blank, whereas the true agreement was that he should indorse “without recourse”; that the indorsement as made did not constitute the real agreement of the parties; and that plaintiff should not, in equity and good conscience, be permitted to profit by the mistake, but should be estopped and enjoined from maintaining the action.

By way of counterclaim, defendant alleged that the note was given as part of the purchase price of a certain farm; that the plaintiff in order to induce defendant to purchase the farm represented that it was as good as any farm in the neighborhood; that there were only two or three spots of Canada thistles and quack grass on the farm; that the water on the cellar floor came from washtubs which were then being used; whereas in fact, the soil of the farm was poor and would not produce crops as good as those in the neighborhood; that three-fourths of the farm was covered with Canada thistles and quack grass; and that water continually seeped into the cellar and caused the whole house to be damp.

Plaintiff's knowledge of the falsity of the representations, and defendant's reliance thereon were averred, and it was alleged that by reason of the fact that the farm was not as represented, it did not exceed in value $12,000. Offer was made to reconvey and pay a reasonable rental upon return of the consideration.

Plaintiff demurred on the grounds that the answer did not state facts sufficient to constitute a defense; that the counterclaim did not state facts sufficient to constitute a cause of action, and further, that the cause of action stated was not pleadable as a counterclaim to the action. The court ordered that the demurrer be sustained, and that the plaintiff have judgment thereon.

The action is one at law and the first defense relied on is also purely legal in its nature. There are no allegations indicating that any reformation of the indorsement is demanded, and there is no apt language from which it may be claimed that there was the intention to plead a counterclaim.

[1][2] No fraud is charged. Therefore the question is presented whether in an action on a blank indorsement the mere allegation by the defendant that he had made a mistake, and that the contract was not the one actually agreed upon, opens the door to prove a different contract than that which the law implies. There is undoubtedly some conflict on this subject. There are numerous cases in other jurisdictions to the effect that a blank indorsement is only prima facie evidence of the contract which the law implies, and that as between the parties the actual contract may be shown by parol.

In some of the cases it is held that the law does not imply a contract where an express one has been made. Counsel for appellant greatly relies on the case of Gunn v. Madigan, 28 Wis. 158, to support this contention. In this case the action was on a guaranty of payment, and the defendant claimed that the real agreement was a guaranty of collection, and claimed that a mistake had been made in executing the agreement. It was held that the answer could not be considered a counterclaim. It was also held the written guaranty must be presumed to express the real contract, and that evidence to show a different one could only be received in a direct proceeding to reform the contract; that since the trial court treated the allegation in the answer as equivalent to a proceeding to reform, and gave the defendant an opportunity to try the issue, and the opportunity was declined by defendant, judgment for the plaintiff was properly rendered. The opinion in that case was written by Mr. Justice Lyon, who also wrote the opinion in Eaton v. McMahon, 42 Wis. 484, in which it was squarely held that the indorser cannot show a parol agreement between the parties that the same should be without recourse. The same rule was declared in Charles v. Denis, 42 Wis. 56, 24 Am. Rep. 383. See, also, Halbach v. Trester, 102 Wis. 530, 78 N. W. 759;Union Bank of Milwaukee v. Commercial Securities Co., 163 Wis. 470, 157 N. W. 510.

Counsel for appellant also rely on Johnson v. Willard, 83 Wis. 420, 53 N. W. 776. In this case the indorsement was “with recourse,” and the defendant was allowed to prove that there was a mistake, and the real intention was that the words should be “without recourse.” Testimony was offered that an assignment of a mortgage securing the note, which assignment was executed at the same time as the note, stipulated that there should be no recourse on the note and mortgage. Under the circumstances the court held that the plaintiff, having knowledge of the mistake, could not recover. It was held that the apparent contract of liability as indorser was void, of which a court of equity had cognizance and would refuse to enforce the void stipulation inserted by mistake.

If these two cases cited by defendant are in any way inconsistent with the general rule below stated, we regard them as exceptional. It has long been settled in this state that the contract of an indorser in blank of an ordinary promissory note is that he will pay the note to the holder if the maker fails to do so, provided the note at maturity is duly presented to the maker for payment, and due notice of nonpayment is given the indorser; that it is a commercial contract which by commercial usage and custom has become just as definite as if written out in greater detail. Gunn v. Madigan, 28 Wis. 158;Eaton v. McMahon, 42 Wis. 484;Charles v. Denis, 42 Wis. 56, 24 Am. Rep. 383.

The rule that parol evidence should not be received to change the contract thus created is most often invoked by the plaintiff in actions on the indorsement, but it has also often operated to the benefit of the defendant when the attempt has been made to enlarge his liability by parol proof offered to show that he was in fact a maker or surety or guarantor.

Counsel for appellant urge that there were two distinct...