Voris v. Birdsall

• Decision Date: 23 January 1917
• Docket Number: Case Number: 5277
• Parties: VORIS v. BIRDSALL et al.
• Court: Oklahoma Supreme Court

1917 OK 113

162 P. 951

62 Okla. 286

VORIS v. BIRDSALL et al.

Case Number: 5277

Supreme Court of Oklahoma

Decided: January 23, 1917

Syllabus

¶0 1. Alteration of Instruments--Materiality--Effect. Where, after the execution of three promissory notes in payment of a stallion, the notes are left with two of the makers for delivery to the payee, and before or at the time of the delivery such notes are materially altered without the knowledge or consent of the other makers, by indorsing a fictitious credit of $ 350 thereon, in pursuance of a secret agreement between the two makers and the payee, such alteration will avoid the notes as to the makers not participating in the alteration.

2. Same. The test as to whether the alteration of a note is material depends, not upon whether it increases or reduces the makers' liability, but upon whether the note will have the same operation and effect after the alteration as it had before.

3. Bills and Notes--Bona Fide Holders----Defenses--Alteration. Prior to the adoption of sections 4174, 4175, Rev. Laws 1910, a material alteration of a note, without the consent of the makers, avoids it as against the makers not consenting to the alteration even in the hands of a bona fide holder without notice of such alteration.

4. Bills and Notes--Statutory Provisions--Applicability. The provisions of the Negotiable Instruments Act of June 11, 1909, do not apply to negotiable instruments made and delivered prior to the adoption of that act.

5. Bills and Notes--Actions--Burden of Proof. The rule placing the burden of proof on the holder of a negotiable instrument to show that he is a holder in due course obtains where there is fraud in the inception of the note.

6. Bills and Notes--Bona Fide Purchasers--Defects in Title. Suspicion of defect of title, or the knowledge of circumstances which would excite such suspicion in the mind of a prudent man, or of circumstances sufficient to put him upon inquiry, will not defeat the title of an otherwise innocent holder of a negotiable promissory note for value before maturity, such note having been executed prior to the enactment of the present Negotiable Instruments Law (chapter 49, Rev. Laws 1910); but such result can be produced only by bad faith on his part.

Grant Stanley, for plaintiff in error.

Dickson, Rush & Dickson, for defendants in error.

JOHNSON, C.

¶1 This case is upon rehearing. Upon the former hearing of the cause in this court an opinion was written and filed herein upon June 27, 1916, by Mr. Commissioner Rittenhouse, which, in part, was as follows:

"On December 11, 1907, the defendants made, executed, and delivered their three promissory notes to R. F. Dygert which were indorsed by him, and subsequently indorsed by L. W. Cochran. This action was brought by E. C. Voris, who claims to be the owner and holder thereof in due course. It is contended by the defendants that these notes, amounting to $ 2,100, were given in payment of a certain stallion; that in order to effect the sale of said animal to these defendants the said R. F. Dygert entered into a secret agreement with the defendants Charles N. Birdsall and Hugh Hardie whereby it was agreed that if they would join the other defendants as joint purchasers of said stallion, jointly executing with them the notes in controversy, and thereby inducing the other defendants to sign the same, he would, prior to the delivery of the notes, secretly and without the knowledge of the other defendants herein, indorse upon each of said notes a credit of $ 100 as having been paid by the defendant Charles N. Birdsall, and upon the note falling due September 1, 1911, a credit of $ 50 as having been paid by Hugh Hardie. In pursuance of this agreement, said defendants executed the notes in controversy, and before or at the time of the delivery of said notes R. F. Dygert did enter the credits agreed upon without the knowledge or consent of the other defendants.

"The question now before this court is: 'Does the indorsement of the fictitious credits before or at the time of delivery to the payee constitute a material alteration of the notes?' We think it does. R. F. Dygert entered into a secret agreement with two of the makers of these notes whereby it was agreed that the notes should evidence a consideration of $ 2,100, while, in fact, the actual consideration would be $ 1,750. This was not the amount the defendants agreed to pay for the stallion and for which they executed their notes, and to the extent of the credits, which amounted to $ 350, which was indorsed prior to or at the time of the delivery of the notes to the payee, the notes were altered without the knowledge or consent of the makers except the two mentioned. There can be no doubt that, when the payee and the two defendants who were parties to this secret agreement indorsed the pretended payments of $ 350 on the notes before or at the time of the delivery thereof to the payee, their acts constituted a material alteration of the amount of the notes, to the same extent as if the indorsement had appeared as an interlineation on the face of the notes. In construing the operation and effect of an instrument such as the one under consideration in this case it is necessary to take into consideration, not only the face of the paper, but any indorsements thereon. As has been said by Daniel on Negotiable Instruments (6th Ed.) sec. 151: 'It seems that the purport of the instrument is not only to be collected from the "four corners," but from the "eight corners," a memorandum on the back affecting its operation being regarded the same as if written on its face. * * *' In Johnston, Receiver, v. May et al., 76 Ind. 293, the court, discussing a similar indorsement to the one under consideration, says: 'We need not argue for the purpose of showing that such an alteration of the note was a material alteration for that is manifest; and the facts found by the court show that this alteration was made in the absence and without the authority of the appellee, and without his knowledge or consent, by the principal in the note and the payee thereof or one of them, before or at the time of its delivery. Under the decisions of this court, such an alteration will vitiate and avoid the note, and prevent a recovery thereon from the appellee.' Portage County Branch Bank v. Gustavus Lane, 8 Ohio St. 405; Polo Mfg. Co. v. Parr et al., 8 Neb. 379, 1 N.W. 312, 30 Am. Rep. 830.

"It is immaterial that the effect of the alteration was to reduce the amount of the makers' liability. The test as to whether the alteration of a note is material depends, not upon whether it increases or reduces the makers' liability, but upon whether the note will have the same operation and effect after the alteration as it had before. Commonwealth National Bank v. Baughman, 27 Okla. 175, 111 P. 332; Citizens' State Bank v. Grant, 52 Okla. 256, 152 P. 1082; German American Bank v. Hennis et al., 54 Okla. 146, 153 P. 671.

"The next inquiry is: 'What effect does a material alteration have upon notes subsequently coming into the hands of a bona fide holder without notice?' This is thoroughly discussed in Commonwealth National Bank v. Baughman, supra, Citizens' State Bank v. Grant, supra, and German American Bank v. Hennis et al., supra, wherein it was held that prior to the adoption of sections 4174, 4175, Rev. Laws 1910, the material alteration of a note by the payee without the consent of the maker avoids it against the maker even in the hands of a holder without notice of such alteration.

"The answer further alleges that the agent of Lew W. Cochran, in order to induce the defendants to purchase the stallion, falsely and fraudulently represented the horse to be a Percheron stallion, foaled April 18, 1904, named Lovalette, with a pedigree of record with the Percheron Society of America, showing his full pedigree for four generations, and numbered 46983; that the said stallion was sound and a sure foal-getter, insured for $ 1,000 in a solvent live stock insurance company. There was evidence supporting the theory that the horse delivered was not the one described in the pedigree. At the time of the execution of those notes section 4109, Rev. Laws 1910, was not in force. This section is but declaratory of the law as it existed prior to its adoption. In the case of the First National Bank of Stratford v. Walker, 39 Okla. 620, 136 P. 408, 50 L. R. A. (N. S.) 115, this court, in dealing with a note made prior to the present law, held: 'In an action on a note by a transferee thereof, defendant cannot introduce evidence as to fraud and failure of consideration until he first substantiates his allegation challenging plaintiff's claim of a bona fide purchase for value before maturity.'

"This theory was disapproved in the case of Sam C. Lambert v. G. S. Smith, 53 Okla. 606, 157 P. 909, wherein it was held that, where fraud is shown in the inception of the note, the true rule places the burden on the plaintiff to establish that he is a holder in due course without notice. Winfield National Bank v. McWilliams, 9 Okla. 493, 60 P. 229; Abmeyer v. First National Bank of Horton, 76 Kan. 877, 92 P. 1109. 'Since there was evidence tending to show fraud in the inception of the note, the burden was upon the bank to show that it acquired the note bona fide for value in the usual course of business, and under circumstances which created no presumption

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