150 Tenn. 184 | Tenn. | 1923
delivered the opinion of the Conrt.
Defendants C. B. Parker and his father, J. A. Parker, have appealed from a decree for $2,800, interest, and attorney’s fees, evidenced hy a note executed by defendants. The defense pleaded was, in substance, that defendants did not owe the debt and that the original note, of which the note sned on was a renewal, had been issued without actual consideration and as the result of some form of fraudulent imposition. Along with this defense to the real merits of the controversy, defendants sought to rely upon an alleged alteration in the original note, charging that when signed it was payable to complainant bank and that the name of Ed. Russell, the cashier of the bank, was afterwards, substituted, as-payee without the consent of the maker. And, second, it was insisted that the renewal note sued on was altered by the addition of
Issues were submitted by defendants, and trial was had before a jury, and on the verdict of the jury the chancellor rendered his decree.
In this court it is insisted by errors assigned, following an overruled motion for a new trial, that the court erroneously took from the jury the consideration of certain issues, and also failed to give' to findings on other issues proper consideration. In view of the finding of the jury under the first two general issues submitted, it must be conceded that what might be termed the underlying questions involved, that is, whether or not defendants are indebted to the complainants in the sum claimed, and whether or not the note sued on was procured by fraud, imposition, deception, or misrepresentation, have been conclusively disposed of in favor of complainants. The contentions here for consideration involve only the right of recovery upon the evidence of indebtedness sued on, based upon the effect of the alleged alterations here-inbefore set forth. There was a controversy of fact as to the alleged alteration in the original note, of which it appears that the note sued on was executed as a second renewal. It is insisted for appellants that complainants are bound to an admission of this alteration by allegations in the bill, and also that the proof sustained this claim, and that the court erroneously took from the jury the consideration of this question, submitted under issues 7 and 9, holding that they were immaterial issues of fact. If it be conceded either that the complainants have admitted the alleged alteration to have been made in
Defendant C. B. Parker testified that when he signed the original note, dated April 8, 1920, he signed on a printed form reciting the name of the bank as payee, and this original note when now produced shows the name of the bank stricken and the name of Ed Russell, at the time cashier of the bank, substituted as payee. Russell testifies, and he is otherwise supported, that this change was made before, or contemporaneously with, the signing by Parker. A controversy of fact is thus presented. However, this note was payable on demand, and on July 1st, following, a new note was executed in like amount payable to the bank ninety days after date and the original note surrendered. Upon the maturity of this note a third note was executed, dated October 1st,' in like amount, payable December 15th, and it is upon this last note that this suit is brought. Both of the renewal notes bear the signatures of both C. B. Parker and J. A. Parker as makers, and no question is made as to the validity of'these signatures. If this suit was on the original note alleged to have been so altered as to the payee, there can be no question under the authorities that the alleged alteration was material and destructive of the instrument, and the issues of fact withdrawn by the court would have been material.
It is insisted for appellants that this defense is equally available against a renewal of a note originally altered. As between the original parties, in the absence of ratification, and against transferees not bona-fide purchas
“As between the original parties, and as against transferees who are not bona-fide purchasers for value, a renewal note is open to all defenses which might have been made against the original note.”
But in the text the sentence quoted is followed by a comma, and the paragraph proceeds:
“At least in. so far as they relate to consideration, such as want or failure of consideration, fraud,” etc.
An examination of the notes in this authority and the cases cited are consistent with and in some instances sustain the distinction above suggested, in' so far, at least, as the original maker of such a paper is concerned. For example, where a note executed by a corporation for a valid consideration is invalid by reason of a defect in its execution, or for want of authority of the officer executing it, such invalidity does not'attach to regularly executed notes given in renewal thereof. Smith v. New Hartford Water Co., 73 Conn., 626, 48 Atl., 754.
Examples of cases in which the rule invoked by appellants has been applied are where the original note was for intoxicating liquors sold in violation of law, or for
Mr. Joyce, in his recent work, Defenses to Commercial Paper (volume 1, par. 361), states the rule generally very much as it is stated in Corpus Juris, supra, quoted by counsel for appellants, as follows:
“So a renewal, as between the original parties and against transferees who are not bona-fide purchasers for value, is open to all the defenses which might have been made against the original note.”
To support his text he cites Auld v. Walker, 107 Neb., 676, 186 N. W., 1008; but an examination of this case shows that the defense sought to be interposed to the renewal note was fraud in the transaction out of which the execution of the original note grew, and upon which it was based. It was properly held that the defenses available to the original note were equally available to the renewal note in the hands of one not shown to be an innocent purchaser. Further illustration of this distinction is afforded by the leading case of Kennedy v. Welch, 196 Mass., 592, 83 N. E., 11, in which the court held that the new or renewal note was void for illegality because the consideration for the original note was an agreement touching the handling of intoxicating liquors prohibited by a State- statute. This was a question going to the validity of the indebtedness evidenced by the original note and not merely to a defect in the instrument
It is suggested that the learned chancellor withdrew the particular issues in question from the jury upon the theory that the execution of the renewal note so constituted a ratification, or waiver, of the alleged alteration in the name of the payee of the original note as to cut off this defense as a matter of law. It is true that generally speaking ratification will not he held binding without knowledge. It is apparently conceded by learned counsel that, if the renewal note in the instant ease was given with knowledge at the time of the alleged alteration in the original note, the defense interposed would not be available to the maker. Not only is this well established but the rule is extended on sound principle, supported by analogy and by authority, to one giving such a renewal note who by the exercise of ordinary diligence could have discovered the facts, holding that if he fails to exercise this ordinary diligence he is as much bound as if he had had actual knowledge. A note in 8 Corpus Juris, 445, to this effect, cities and is supported by Padgett v. Lewis, 54 Fla., 177, 45 South., 29. The case at bar would seem to fall directly within the principle of
‘ ‘ The added party has been held liable where there was no fraud or misrepresentation in procuring his signature, although he signed upon the faith of the liability of the original maker, who may have been released by the addition of another party,” citing Crandall v. First Nat. Bank, 61 Ind. 349.
And, too, by Shannon’s Ann. Code, section 3516al32, dealing with the effect of a material alteration, it is expressly provided that — “Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration, and subsequent indorsers.”
This is in harmony with the rule above announced. In the instant case J. A. Parker himself made the alteration by the addition of his name and comes within the exception covered by the underscored words above quoted from the statute, and it follows that the assignment of
Moreover, looking to the verdict of the jury on the issues relating to this alteration, we are persuaded, for reasons indicated in a memorandum filed herewith, that the decree of the chancellor against both of these defendants was justified on the facts, the contention that the signature of J. A. Parker was added without the knowledge or consent of O. B. Parker, the original maker, not being sufficiently established by the record as a whole; and the decree must be affirmed as to both of the appellants.