68 Tenn. 168 | Tenn. | 1877
delivered the opinion of the court.
The action is brought upon a promissory note for five thousand dollars, executed by C. Pfanuensteihl to the defendant, S. M. Jobe, on the 4th August, 1866, due at twelve months after date, and indorsed by Jobe to W. D. McCallum, February 21, 1870, and by him to the plaintiff. At the time of the purchase of the note by W. D. McCallum, the defendant Jobe had a mortgage upon valuable real estate in the city of Memphis to secure it. Upon the same property W. D. McCallum had foreclosed a subsequent mortgage of his own, had become the purchaser himself and was in
It was insisted upon the trial below, that the liability of. the defendant as endorser, had not been fixed by due and lawful demand and notice, and that by the laches of the plaintiff in this respect the defendant had been discharged. In the view we have taken of the case, this question may well be ignored and pre-termitted in the discussion. We may concede, for all the purposes of this decision, that the demand and notice were proper, regular and lawful, but where it is so plainly manifest upon the merits of the cause, that the exact legal rights of the parties have been attained and the strict law of the case administered by the verdict, we are forbidden to reverse the judgment, unless in some manner the merits of the cause have been affected by the error alleged. It is alleged as error, that the court below, over the objections of the plaintiff, admitted the testimony of the defendant to the effect that when he sold and indorsed the note to W. D. McCallum, there was a distinct understanding between them that McCallum was buying to relieve his property of this incumbrance upon it, and that the defendant was in no manner to be held liable as indorser, but that the transaction was understood by both parties as a substitution of McCallum to all of Jobe’s rights under his prior mortgage, which as a matter of fact was a full and ample indemnity and consideration to McCallum for his outlay for the note.
There is a well-established exception to the rule, that parol evidence .is inadmissible to alter, vary or impair the legal effect of a written contract of endorsement such as this, which we fully recognize. As between the original parties to commercial paper, or others having no superior equities, parol evidence has always been admitted to show fraud, want or failure of consideration, or that the enforcement of the contract according to its legal effect, as gathered alone from the writing, would operate as a fraud upon the defendant. And we apprehend that nothing can be found in our decisions that, upon careful scrutiny, conflicts with this well-established exception, where a defendant has sought to bring himself within the exception. The rule is thus strongly stated in the text books: “ Notwithstanding the general rule that bills and notes cannot be contradicted in their legal effect by oral evidence, it is well-settled that they may, between the original parties, be impeached for illegality, for failure of .consideration, for fraud, for want of consideration, or by showing a subsequent agreement varying the original contract, or waiving a portion of
Parol evidence may undoubtedly be given of the circumstances under which a note or its indorsement is made, in order to show a want or failure of consideration, or illegality in the transaction, or to present the defense of a fraudnlent appropriation of the note to a purpose to which it was not intended, or to establish a contemporaneous agreement as to the mode of payment which has been executed in satisfaction of the debt. Chitty on Bills, 69, 142; Duncan, Sherman & Co. v. Gilbert, 5 Dutcher, 521; Oliver v. Phelps, Spencer, 180; 1 Zab., 597; Chaddock v. Vanness, 35 N. J., 517; 10 Am. Rep., 258. These rules apply as between the immediate parties, or subsequent parties without superior equities. The language of the rule, says a late text writer, implies its limitation, for it does not extend to exclude evidence offered to show want or failure of consideration, or to impeach the original or present validity of the indorsement on the ground of fraud. Facts may always be proven by parol that tend to show that the enforcement of defendant’s liability would operate as a fraud. 1 Danl. Neg. Inst., sections 720, 722. A fine illustration of the exception is found in the case of Hill v. Ely, 5 Serg. & Rawl., 366, where the holder handed Hill the notes, saying, “ Hill, you must endorse the notes.” The defendant replied, “that is not our understanding.” To which the plaintiff rejoined, “they are made pay
It is developed in the proof, that Jobe’s remedy under the mortgage was temporarily embarrassed by an injunction bill then pending to restrain the collection of certain separate interest notes alleged to be usurious, and the true solution of his conduct is in the fact that this transaction with McCallum was the shortest and best way for his own extrication, without the greater sacrifice of a protracted delay in the foreclosure of his mortgage. What, then, is the legal effect of this transaction? It seems to us that the authorities are very clear to 'the effect that by operation of law the debt was extinguished and that there can be no recovery on the note. In such a case the sale of the note carried the security with it, and no paper title was necessary to invest the purchaser with all the benefits of the mortgage. Cleveland v. Martin, 2 Head, 131. It would certainly be. a monstrous anomaly of wrong to permit McCalluni to be first reimbursed for his whole outlay by a discharge
In support of this view we cite numerous authorities bearing upon it in divers aspects, and which we hold to be decisive of the case: 1 Hil. on Mort., 236, 251, 375, 540, 543, 504; Perry on Trusts, 318, 351; 7 Hum., 127; 5 Cow., 202; 4 B. Mon., 529; 34 Iowa, 392; Meigs’ R., 52; 4 Johns, 43; 15 Mass., 485; 19 Johns, 325; 2 Wash. R. P., 500; 6 Allen, 79; 2 Johns Ch., 128; 10 Paige, 255; 6 Yer., 116; 8 Mass., 493; 22 Pick., 394; 2 Col., 167; 9 Hum., 726; 20 Penn., 284; 14 Pick., 104; 3 Johns Ch., 53; 6 Johns Ch., 417; 1 Allen R., 242; 18 Ves., 384; 20 Mo., 482; 20 Mich., 9; 6 Pick., 492; 3 Cush., 554; 2 Barb. Ch., 618; 51 Ill., 331; 51 N. Y., 333; 10 Paige, 595.
Affirm the judgment.