Stark v. Veal

• Court: Texas Supreme Court
• Writing for the Court: MOORE
• Citation: Stark v. Alford & Veal, 49 Tex. 260 (Tex. 1878)
• Decision Date: 01 January 1878
• Parties: J. R. STARK v. ALFORD & VEAL.

49 Tex. 260

J. R. STARK

v.ALFORD & VEAL.

Supreme Court of Texas.

1878.

APPEAL from Houston. Tried below before the Hon. A. T. McKinney.

The facts are fully given in the opinion.

W. A. Stewart and Nunn & Williams, for appellants.--We submit, that there is plenty in the record to show that Alford & Veal are in no better position than the Washington Iron Works.

And, first, we submit that they are original parties to the contract. (Smith's Mer. Law, 264; 1 Pars. on Cont., 250; Chitty on Cont., 28; Hoffman & Co. v. Bank of Milwaukee, 12 Wall., 181.)

Second. “Original parties cannot set up plea of innocent holder of negotiable paper.” (Smith's Mer. Law, 336; Kent's Comm., 96-98; 1 Pars. on Cont., 256; Watson v. Flanagan, 14 Tex., 354; Story on Bills, sec. 187; Chitty on Cont., 28.)

Third. A promissory note or bill of exchange transferred out of due course of trade, cannot be collected by holder, if the maker have a meritorious defense. (3 Kent's Comm., 97 and note C, and 98.)

We presume it will not be seriously contended that Alford & Veal, the drawees of the bill, could discount the same before maturity and pay it, and then claim to have received the note in due course of trade, and to be innocent holders. This could not be said to be in due course of trade. They are the parties ordered to accept, and at maturity pay. They had no right to pay before maturity. They are original parties to the transaction, and affected with all defenses that could be urged against the payor. (2 Kent's Comm., 8th ed., p. 593; Chitty on Cont., 28.)

Fourth. The draft and deed of trust conveyed notice to Alford & Veal of the nature of the contract, and therefore of the possibility of failure of consideration, and they cannot be heard to say, after purchasing such paper, that they are innocent holders. (Howard v. Kimball, 6 Am. Rep., 740;65 N. C., 175.)

Fifth. In addition to the above, the appellees had actual notice of the entire trade. * * * *

In addition to what we have heretofore said, we would submit, that the acceptance by Alford & Veal of the draft made them the parties primarily chargeable, and their recourse, depending on the facts, would be on the drawer for money advanced to his use. The payment of the draft was an extinguishment of the draft, and with it expired the deed of trust. (Close v. Fields, 2 Tex., 238;Pridgen v. McLean, 12 Tex., 421;Duty v. Graham, 12 Tex., 427.) And this is the effect, although the money had been paid before maturity, by way of purchase. (Smith's Mer. Law, 294.)

The presumption was, that the funds of Stark were in their hands when they accepted; but, otherwise, their remedy was by assumpsit, basing their claim on the payment without funds and the liability of Stark to make repayment. In Close v. Fields, 2 Tex., 235, the court says:

“That according to the principles of liability of the drawer to the acceptor for accommodation, the acceptor can never sue on the bill; he must sue as for money loaned or paid to the use of the drawer.” (Chitty on Bills.)

It is true, that in the case of Sublett v. McKinney, 19 Tex., 438, the court seems to have modified this rule; but even now, we submit, there is no more than a recognition of an equitable right to substitution, and we think it would be necessary for the acceptors paying without funds to invoke the equitable powers of the court in aid of their rights. Therefore, the proceeding to sell the machinery under the trust deed, after the payment of the draft, was illegal and unwarranted.

We would invite attention to the peculiar manner of the acceptance of this draft. It is on separate paper, and stipulates that, if funds are not provided for its payment at maturity, the acceptors shall have an extension of sixty days thereafter. This clearly shows that the acceptors, as well as the payees, well understood the fact that Stark was relying on the products from his mill as a means for providing funds with which to pay, and that it was possible he might fail to make payment punctually. We would submit, that the record shows that the entire failure proceeded from the defects in the machinery.

According to the most favorable rule that could be contended for under the decision in the case of Sublett v. McKinney, supra, the acceptors could only ask substitution or subrogation under rules applicable to sureties paying the debts of their principals; and we are not aware of any case where they could invoke this rule, except after having been compelled to pay the debt, in obedience to their obligation and contract. We cannot conceive of any rule of law or equity that would enable them to step forward, in advance of any just obligation or liability of theirs, and pay off a debt against their principal, that, in point of fact, had no legal existence, and before the time set for its payment, and then claim the rights of subrogation, and at the same time to be innocent holders of mercantile paper, whereby to defeat their principal in the defenses he had against such a claim. And the rights of subrogation, under which alone Alford & Veal could claim to enforce the trust deed, would only secure to them such rights as pertained to the creditor, and would also subject them to such defenses as might have been urged against the creditors. Mr. Story, in his excellent treatise on equity jurisprudence, in discussing this question, seems to take as an essential condition to the right of the surety to recover against his principal, that “he should be compelled to pay the debt.” (1 Story's Eq., p. 544, sec. 492.)

And again, it is conceded that the rights of subrogation, whatever they may be, are based on the presumed assent of the principal that he make payment, “because [it is said] a person cannot make himself the creditor of another by volunteering to discharge his obligations.” (See note to section 499 d, p. 565; also, for full discussion of this subject, sections 492-500.)

Had they waited till it had become their duty to pay under the contract, and had received no notice from the drawer not to pay, then, it is conceived, the drawer would be without remedy had they paid the debt.

But concede that they stand as sureties, and are subrogated to the rights of the creditor, then have they any more or better rights?

To avoid this objection, they claim to be innocent holders of mercantile paper, thereby placing themselves in two very distinct and antagonistic positions in reference to the contract.

In further support of the position that the acceptors had no right to pay before maturity, we would call attention to the case of the First National Bank of Jersey City v. Leach, decided by the Supreme Court of New York, (11 American Reports, 710; 52 N. Y., 350,) in which the court, in discussing the relative rights of the bank and the drawer of a check after certification of the check, says: “The acceptance of a time draft before due is entirely different. There, the holder has then no right to the money, and the acceptor no authority to pay, until the maturity of the bill. There is no necessity for presenting a check for acceptance, like a time bill; no authority for such presentment-- although the holder has the right to do it.”

Moore & Spence, for appellees.

1. The law refuses to take into consideration any damages remotely resulting from the act complained of. (Sedg. on Dam., 57; Calvit v. McFadden, 13 Tex., 324.)

2. Fraud on the part of the holder of a bill of exchange, is the only ground on which the consideration can be inquired into. (Salmon v. Gibson, 1 Hill, 308; Chitty on Bills, sec. 89; Story on Bills, 546, 547; Parsons' Merc. Law, 124; Magee v. Badger, 34 N. Y., 247; Paschal's Dig., 221.)

3. The plea in reconvention by the plaintiff, seeking to offset the damages from the breach of the contract of guaranty against the bill in the hands of Alford & Veal, ought to have been stricken out. The damages, being unliquidated, could not be set off against the bill of exchange. (Benjamin on Sales, 685; Chitty on Bills, sec. 93; 1 Parsons on Notes and Bills, 207, 210; Morgan v. Richardson, 1 Camp. N. P., 40; Tye v. Gwynn, 2 Camp. N. P., 346; Parish v. Stone, 16 Pick., 198; Sayles on Pl., sec. 157; Danl. Ch. Pr., sec. 1743; Story's Eq. Pl., 400; Egery v. Power, 5 Tex., 501;Castro v. Gentiley, 11 Tex., 28;Duncan v. Magette, 25 Tex., 250.)

4. Alford & Veal, under the facts, were innocent holders of the bill, and entitled to protection as such. (Paschal's Dig., 221, 227; Jackson v. Marshall, 6 Tex., 329; 2 Pars. on Bills and Notes, 19, 33, 40; Chitty on Bills, sec. 170, 171; Story on Bills of Ex., sec. 207; Pars. Merc. Law, 122, 123; Byles on Bills, sec. 113, p. 214; Story on Prom. Notes, sec. 191, 197; Smith's Lead. Cas., 250; Greneaux v. Wheeler, 6 Tex., 522;Weathered v. Smith, 9 Tex., 625;Butler v. Robertson, 11 Tex., 142;Claiborne v. Yoeman, 15 Tex., 44;Ross v. Smith, 19 Tex., 172;Rider v. Duval, 28 Tex., 624.)

5. Alford & Veal had absolutely bound themselves to pay the bill by giving a valid acceptance. “An acceptance may be in writing on the bill itself, on another paper, or verbal.” (Chitty on Bills, secs. 222, 223.) “A promise to accept a bill thereafter to be drawn, specifying the amount and time of payment, so as to leave no reasonable doubt as to the identity of the bill to be accepted, is, if shown to a third person, who on the faith of such promise takes the bill for a valuable consideration, in point of law an acceptance, binding the person making the promise.” (Parker v. Greele, 2 Wend., 545.) “A valid agreement to accept may be declared on as an acceptance.” (Ontario Bank v. Worthington, 12 Wend., 593; Parsons' Merc. Law, sec. 129, and note; 7 Curtis, 560; 8 Curtis, 68; Story on Bills, sec. 244.) And this acceptance, once issued, could not be revoked. (Smith's Merc. Law.) “When acceptance is once made, if the bill has been delivered to the holder, the transaction is complete, and the acceptance is irrevocable.” (Story on Bills, sec. 252; Smith's Merc. Law, 91;...