Republic Nat. Bank of Dallas v. Strealy

• Decision Date: 01 November 1961
• Docket Number: No. A-8331,A-8331
• Citation: 350 S.W.2d 914,163 Tex. 36
• Parties: REPUBLIC NATIONAL BANK OF DALLAS, Independent Executor of the Estate of Ray K. Glenn, Deceased, Petitioner, v. Leonard STREALY, Respondent.
• Court: Texas Supreme Court

Page 914

350 S.W.2d 914

163 Tex. 36

REPUBLIC NATIONAL BANK OF DALLAS, Independent Executor of

the Estate of Ray K. Glenn, Deceased, Petitioner, v. Leonard STREALY, Respondent.

No. A-8331.

Supreme Court of Texas.

Nov. 1, 1961.

Rehearing Denied Dec. 6, 1961.

Jackson, Walker, Winstead, Cantwell & Miller, Jack Pew, Jr., Dallas, with firm, for petitioner.

Elmo Irby, Fort Worth, for respondent.

HAMILTON, Justice.

This case involves the question of the legal effect of a negotiable instrument where the place of payment had been left blank but was filled in by the holder without express authority of the maker.

On December 31, 1953, Leonard Strealy executed a note in the principal sum of $8,838.15, payable to the order of Ray K. Glenn 'at _____'. At the time of making delivery of the said note both parties lived in Fort Worth. Later Glenn moved to California and then to Dallas, where he died about four years after the date of the note. The Republic National Bank of Dallas, the petitioner here, became independent executor of his estate. Payment on the note had always been sporadic, but shortly after Glenn's death Strealy signed an agreement with the Republic National Bank agreeing to make regular payments. After several payments to the bank Strealy once again became delinquent. On October 9, 1958, the bank sued Strealy in the District Court of Dallas County for the balance claimed to be owing on the note. Strealy filed a plea of privilege to be sued in Tarrant County, the county of his residence. After the plea was filed, counsel advised the bank that it had the right to insert the words 'Dallas, Texas' in the blank space in the note after the word 'at', thus indicating that the note was made payable in Dallas. This was done, and the bank's attorney immediately notified the respondent and his attorney of the filling in of the blank and of the legal authority upon which they had relied. However, before any action was taken on the plea of privilege, the petitioner took a nonsuit in the Dallas County action and commenced this suit in the 153rd District Court of Tarrant County, Texas.

Petitoner's cause of action was based upon a verified account and alternatively on the note, alleging the balance owing on the note to be $3,640.36. Strealy did not file a general denial, but pleaded that the verified account was untrue in whole or in part and that the note was avoided by the action of the bank in filling in 'Dallas, Texas' in the space in the note left blank for the place of payment; that such action constituted a material alteration of the note, that it was fraudulently done, and that it discharged respondent from liability on the note and underlying debt. The substance of Strealy's testimony was that he had not given any express authority for anyone to fill in the blank space with a place of payment.

The bank's motion for directed verdict was overruled, the court submitted a single special issue to the jury, and the jury answered that the action of the plaintiff in writing 'Dallas, Texas' into the note in question was for the sole purpose of fraudulently preventing the transfer of the suit to Tarrant County. Petitioner's motion for judgment non obstante veredicto was overruled and judgment was rendered that petitioner, Republic National Bank, take nothing. This judgment was affirmed by the Court of Civil Appeals, which held that the petitioner avoided the note by materially altering it and thereby also avoided the underlying debt because the alteration amounted to a species of legal fraud. , 343 S.W.2d 284. We reverse the judgments of the trial court and Court of Civil Appeals and render judgment for petitioner.

The bank contends that the insertion of a place of payment in a blank space provided for the purpose is not a material alteration as defined in Section 125 of Article 5939, Texas Civil Statutes (Vernon 1948), and that it had the right to fill in such blank under Section 14 of Article 5932, and that regardless of its legal right to do what it did there was no evidence of fraud on its part. Respondent, Strealy, contends that Sections 124 and 125 of Article 5939 control, and that the filling in of the blank space was a material alteration which avoids the instrument and that such action constituted fraud, which discharges the underlying debt.

We hold that Section 14 of Article 5932 governs in this case.

Section 124 of the Negotiable Instruments Act (Art. 5939, V.C.S.), provides that 'Where a negotiable instrument is materially altered * * * it is avoided * * *.'

Section 125 of the Negotiable Instruments Act (Art. 5939, V.C.S.) defines a 'material alteration' as:

'Sec. 125 Any alteration which changes:

'3. The time or place of payment;

'Or which adds a place of payment where no place of payment is specified, * * * is a material alteration.'

The filling in of blank spaces of negotiable instruments is governed by Section 14, Article 5932, V.C.S., which reads:

'Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time.'

At first glance it might appear that these sections are in conflict. Section 14 authorizes completion of the instrument by the filling in of blanks, but Section 125 says that the adding of place of payment where no place of payment is specified is a material alteration, and Section 124 says a material alteration will avoid the note.

The Legislature did not intend these sections to be in conflict, and if they can be reasonably harmonized so as not to be in conflict it is the court's duty to so construe them. Hill v. State, 54 Tex.Cr.R. 646, 114 S.W. 117.

In order to resolve the seeming conflict between Sections 14 and 125 it is necessary to become involved with semantics. Section 125 talks only of 'changes' and 'additions' which constitute a material alteration. Section 14 deals with 'completions' by filling up blank spaces left in the instrument. In construing this language it appears probable that the Legislature intended 'changes' to mean the marking out, erasing, detaching, or writing over of parts of an already completed instrument, and the word 'addition' to mean the insertion of a new clause or wording where no blank is provided. See for example cases and annotations in 5 Uniform Laws Annotated (Part 2), Section 125 (Uniform Negotiable Instruments Act). We believe that Section 125 is not applicable to completing a note by filling in of blanks.

In the case of Citizens' State Bank of Earlham v. Martens, 204 Iowa 1378, 215 N.W. 754, 757, The Supreme Court of Iowa was also faced with the problem of a conflict between Section 14 and Sections 124 and 125. That court said:

'* * * When harmony, uniformity, and enforcement of all portions of the act are possible, it is our duty so to proceed in order that no part will be discarded and the entirety made effective. Truly, a material alteration will work an avoidance; also 'change of place of payment' may amount to such 'material alteration'; but not so if the transaction involves the 'filling in' of a blank intended therefor, within the purview of said Section 9474. * * * (Sec. 14 NIL)

'Therefore Section 9474 (Sec. 14 NIL) prevails where the facts and circumstances are such as are therein contemplated, and in that contingency sections 9585 and 9586 (Secs. 124 and 125 NIL) have no bearing on the situation.'

Therefore, if the filling in of a blank is not a material alteration under Section 125, Section 124 would not apply to avoid the note, as it applies only 'where a negotiable instrument is materially altered * * *.'

Another indication of the intention not to call 'filling in the blank' a 'material alteration' can be derived from comparing the legal effect of a materially altered note in the hands of a holder in due course not a party to the alteration (Sec. 124), with a note that has had a blank filled in contrary to authority given or not within a reasonable time and then negotiated to a holder in due course (Sec. 14). In the first instance the innocent holder can enforce payment of the note, but only in the amount of the original tenor. Whereas, in the case of an unauthorized filling in of blanks, when it is negotiated to a holder in due course after the unauthorized completion, 'it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time.' Sec. 14. If filling in the blanks is a material alteration, would not Section 124 allow a holder in due course to enforce payment of a note only according to its original tenor? What then would be the effect of the last sentence of Section 14? In order to harmonize these two sections of the Negotiable Instruments Act, we must say that the filling in of blank spaces is not an alteration; therefore, in cases involving the filling in of blanks left in negotiable instruments, Section 14 must be applied.

In applying Section 14 to petitioner's act of filling in the words 'Dallas, Texas' it must be determined whether this act was done strictly in accordance with the authority given. The general rule seems to be that where a writing containing ...