Graham v. Wilson

6 Kan. 489 | Kan. | 1870

The opinion of the court was delivered by

Kingman, O. L:

This was an action upon a promissory note executed by the plaintiff in error and one A. McConnell in favor of Calvin O. Robinson. The note was not made payable either to his order, or to bearer. It was assigned for a valuable consideration before due, to defendant in error, who brought the action in the court below. The defendants in the court -below answered separately: McConnell relying upon a release; and upon the trial his answer was sustained by a verdict and judgment, so that there is no question here, as to his liability. Graham’s answer set up fraud and misrepresentation on the part of Robinson as the inducement for-Graham to make - the note, and by reason of which he did make the same. The answer not only sets up the fraud and misrepresentation generally, but enters into details, which if true, abundantly show by the facts' stated that the allegation was not too broad. The plaintiff replied, denying generally the allegations of the answer.

Upon the trial the defendant Graham’ offered evidence to prove the statements of his answer, which the court refused to permit him to do; and this refusal is the error alleged in this case. The defendant in error files no brief, and we are left to conjecture as to the reasons upon which the district court founded its ruling.

I. The record really presents two questions. First, could the defense attempted to be made have been allowed in an action brought by the payee of the note against the maker ? and second, if so, can it be allowed in an action brought by one to whom the note was assigned for a valuable consideration before due ?

i. jtok-neooc^dderation.— fraudulent misrepresentations We think the facts set forth in the answer constitute of themselves a good • defense to the action had it been brought by the original payee. It is too late to revert to a doctrine found in the earlier decisions, that where a contract was tainted with fraud it must be set aside in toto; or that where there was such misrepresentation as to the quality of the thing sold as greatly to impair its value the person so injured could not use such facts as a defense, but must resort do a cross action, against the plaintiff’ for relief. These rules have been greatly modified, even in England, by later decisions where the courts “ appear to have “yielded materially to the influence of common sense “ and common convenience. But, however the rule laid “ down in England has been understood, it has repeatedly “ been decided by learned and able judges in our own “ country, "when acting, too, not in virtue of a statutory “ license, or provision, but upon principles of justice and “ convenience, and with a view of preventing litigation “ and expense, that where fraud has occurred in obtain- “ ing or in the performance of contracts, or where there-“has been a failure of consideration, total or partial, or a “breach of warranty, fraudulent or otherwise, all, or “ any, of these facts may be relied on in defense by a “party when sued upon such contracts: and that he shall “not be driven to assert them, either for protection or as “ a ground for compensation, in a cross action.” Withers v. Green, 9 Howard, 230. This case cites and reviews many of the authorities upon'this point, to which may be added, as being almost precisely similar to the case under consideration, the cases of Hammatt v. Emerson, 27 Maine, 828, and Allen v. Shackleton, 15 Ohio St., 147. This last case places the decision briefly on the ground that it is authorized, by the code in a section corresponding with section 9 1 of the code of this State. The law on this point ougl t to be considered settled.

2 — Assigiu..' ot£™e,”bl£r"7:a0 takes it subiect to an equities. II. The second question remains to be answered. Can this defense be allowed in an action brought by one to whom the payee assigned the note for a valuab i consideration before due? It will not be ^ 5£jone(j that unless some statutory provision shall prohibit such a defense that it would be available; for it has always been the established doctrine that the assignee of a Yion-negotiable note, takes it subject to all the equities existing between the maker and the payee. 1 Pars, on Cont., 195, 198 ; Edw. on Bills, 208, 209. Nor will it be questioned that the note sued on is anon-negotiable note. Gen. Stat., ch. 14, § 1, p. 114; Story on Prom. Notes, § 128.

Have our statutes made any change in this respect? The difficulty, whatever there is, on this point, arises from the fact that the same legislature has enacted a law bearing upon or controlling the subject, in three different chapters, and under as many headings: see Gen. Stat., §§ 2 and 3 p. 114; § 8, p. 183, and § 27 of the code, p. 635. These several sections referring to the same subject should be construed together, and the intent of the legislature drawn from them all if possible. Section 27 of the code of civil procedure is too familiar to need quotation here. It establishes a rule as to non-negotiable paper that would admit the defense set up in this case as against the holder of the note though it was assigned to him for a valuable consideration before due. The reason of the section is apparent. If a man chooses to give a commercial character to his paper he may do so by making it negotiable, and if it passes into the hands of a holder for a valuable consideration before due, he shall not bo allowed to raise questions affecting the value of the paper which he has allowed to go into circulation; but if the holder of the note has taken the assignment thereof after maturity he has implied notice by the non-payment, that there is some defense or latent equity against the note, and he takes it subject to such possibilities. So, if the note is non-negotiable; this very fact is a notice to him, and he takes the note at his peril. There is no difficulty in construing this section; and when we consider the reasons for its enactment, there will be little trouble in understanding section eight, pp. 183, 184. That section is as follows:

“Sec. 8.-The want or failure in the whole or in part of the consideration of a written contract may be shown as a defense, total or partial as the case may be, in an action on such contract brought by one who is not an innocent holder in good faith.”

Is the holder of a non-negotiable note ever an “ innocent holder” in the sense in which that term is known to the law? We think not. The maker of such a note has taken care, in making the note, to so limit his liability, as to challenge the attention of and give notice to all that it is made subject all the time to such just defenses as he may have, or to such latent equities as may exist; and any person taking such a note by assignment is put upon his guard to make inquiries of the maker as to the existence of any grounds of legal defense he may have. If this sectiop can have any other meaning, then the distinction made in section 21 of the code between negotiable and non-negotiable paper has no effect; and yet the code was adopted after section 8 above quoted. The construction we have given this section makes our statutes harmonious and consistent each with the other, and ought to prevail. Consequently the decision of the court below in refusing to permit evidence of the defense to be given was erroneous.

The judgment must be reversed and a new trial awarded.

All the Justices concurring.