Bank of Commerce v. Ruffin

175 S.W. 303, 190 Mo. App. 124, 1915 Mo. App. LEXIS 411

• Court: Missouri Court of Appeals
• Decided: April 14, 1915
• Status: Published

Opinion

OPINION.

FARRINGTON, J.

We are of the opinion that by the sale of the paper purporting on its face to be a tax bill and purporting to be a lien on a certain lot and the statement in the assignment thereof that a lien existed on that lot,'the seller contracted that he was delivering a valid, subsisting, enforceable lien, obligation, or chose in action against the Baxter lot; and that when it was shown that that which Ruffin sold was not a lien as represented and never had been a lien against this lot because of a defect not growing out of and discoverable from the council proceedings but collateral thereto, he breached the condition of his contract, which breach has in a number of instances, as is pointed out in the case of Meyer v. Richards, 163 U. S. 385, 41 L. Ed. 199, been called a breach of an implied warranty.

In discussing the tax bill and lien in question in connection with other dioses in action throughout this opinion, when we speak of an instrument as invalid or unenforceable or nonexistent we are not referring to those rendered invalid because of some invalidity in the proceedings of a governmental body, or to those rendered void by reason of some unconstitutional or void law or ordinance. The courts and text-writers recognize that defects in this respect as to public securities form an exception to the general rule. [See: Otis v. Cullum, 92 U. S, 447, 23 L. Ed. 496; Meyer v. Richards, 163 U. S. 385, 41 L. Ed. 199; Ruohs v. Third National Bank, 28 S. W. 303; Richardson v. Marshall County, 45 S. W. 440; Rogers v. Walsh, 10 N. W. 467; Walsh v. Rogers, 18 N. W. 135; White v. Robinson, 50 Mich. 75, 14 N. W. 704; Sutro v. Rhodes, 92 Cal. 124, 28 Pac. 99; Ogden on Negotiable Instruments, sec. 116; 1 Daniel on Negotiable Instruments (6 Ed.), sec. 734; Tiedeman on Commercial Paper, sec. 244.]

Appellant admits that the case of Miners Bank v. Burress, 164 Mo. App. 690, 147 S. W. 1110, is an authority against his position, hut he asserts that the decision in that case was for the right party because the contractor must have known that he failed to use the quantity of material called for by his contract and that a recovery by the purchaser of the tax hills in that case should be sustained on the ground that fraud was practiced. However, the appellant takes issue with what the court there said as to a recovery on an implied warranty. Regardless of what the facts in that case were, the opinion did in plain language allow the recovery on the breach, and therefore our decision now is in line with what was there held.

A review of the decisions on the question, in connection with the' facts of this case, we think sustains our position. We shall first discuss a number of cases holding that any defect unknown to seller and buyer which renders the chose in action absolutely void entitles the purchaser to recover, followed by a discussion of the cases falling within an exception to the general rule, to-wit, government securities which are defective by reason of an unconstitutional or void law or ordinance, or where there was something done or left undone in the proceedings that rendered the securities void'.

In the case of Gilchrist v. Hilliard, 53 Vt. 592, a recovery was had on the theory that there was an implied warranty that certain accounts when assigned were what they purported to be — “due and owing.” The decision in that case was reaffirmed in the case of Chester Kingsley v. Fitts & Avery, 55 Vt. 293, 295.

In the case of Wood v. Sheldon, 42 N. J. L. 421, a recovery was allowed on the sale of a nonnegotiable chose in action, a certificate which on its face evidenced that the defendant was entitled to a certain amount of money. The issue of this and other like certificates was declared fraudulent and illegal. The rule of caveat emptor was pressed. The language of the court is concise: “The cases cited in the brief of the counsel of the plaintiff in error, appear to me wanting in pertinency. They are decisions elucidating or enforcing the rule of caveat emptor, which it is insisted applies as well to a sale of stocks as to chattels. But that rule, in all cases, is applicable only to the quality of the thing sold, and not to its title. So it has no relevancy where a nonentity has been the subject of a sale. The precedents cited which maintain the principle that where a person gets what he intended to purchase, he cannot repudiate the bargain, no matter how worthless the thing so obtained may be, certainly can have no application to this case, in which the vendee did not get what he expected to get. Both parties to the present contract thought that he was obtaining a valid obligation of this gas company, binding them to. pay this large sum of money. Instead of this, a nullity was passed to him.”

In the case at bar, plaintiff bargained for and the defendant undertook to sell a lien on a certain lot when, in fact there was never any time when defendant owned such lien; it never existed any more than the accounts existed in the Vermont case, or the credit in the New Jersey case, and its failure to exist was not due to an invalid proceeding of the city council nor because it was issued under a law or ordinance which was unconstitutional or void.

A similar case is that of Daskam v. Ullman, 43 N. W. 321, where the court said: “It is not denied that the defendants had sold these notes to the plaintiff fob all that appeared on their face to be due upon them. This being so there was surely a warranty implied in law that they had not been paid; for it is the settled law in this State that, in the assignment of an instrument or contract in writing, even not negotiable, for a full and fair price, the assignor impliedly warrants that it is valid, and that the maker is liable upon it, unless it clearly appears that the parties intended to the contrary. It is sufficient to cite, in support of this proposition, the case of Giffert v. West, 33 Wis. 617, where the question is elaborately considered and this rule of law established. ’ ’

That the defendant impliedly warranted the validity of a lien or contracted to pass title to a lien does not mean that there must have been sufficient property to satisfy the lien; but he purported to sell a lien on a certain lot and impliedly represented that he owned such lien, that there was no forgery connected therewith, and that he had a right to enforce such lien, which right he was selling to the assignee. The facts disr close that what he had was no lien at all on this lot and that he never had a right to enforce a lien on the lot, growing out of a defect collateral to the proceedings of the city council or laws under which it was acting. His paper evidence of his supposed lien was a nullity and was not what he, by showing it and offering it for sale, was representing it to be. The face of the instrument he was selling purported to be a lien on a certain lot and by the language defendant used in his assignment thereof he purported to sell such lien; in other words, he was selling a claim or chose which purported to make a certain lot liable to a certain lien for the payment of a certain sum of money, and he must be held liable in this case if he failed to deliver that which would be a lien on the lot, since the failure to make a valid lien did not grow out of the proceedings authorizing its issuance. [Giffert v. West, 33 Wis. 617.]

In the case of Boyd v. Anderson, 1 Overton, 438, 3 Am. Dec. 762, a land warrant was sold and subsequently declared void. The purchasers were allowed to recover the purchase price on the principle that “where the seller has the possession of goods, the bare affirming them to be his makes a warranty.”

The defendant in our case asserted that he had a lien on the Baxter lot, and he should therefore he required to make good such assertion. [See: Claflin v. Godfrey, 21 Pick. (Mass.) 1; Tyler v. Bailey, 71 Ill. 34; Winstell v. Hehl, 69 Ky. 58; Emmerson v. Claywell, 14 B. Monroe (Ky.) 18, 58 Am. Dec. 645.]

An assignee takes the risk of enforcing a chose in action provided what he bought was in fact what it seemed to be, a genuine, valid, subsisting, claim, debt or lien. [Houston v. McNeer, 22 S. E. 80; Dumont v. Williamson, 18 Ohio State, 515, 98 Am. Dec. 186.]

Here, the act of the defendant in not constructing the sidewalk in the public street, but putting it on private property instead, made his claim against that lot a nullity — made so by his own error or mistake; and although the city engineer marked the place for him to lay the sidewalk, this does not relieve him of the duty of placing it where his contract provided, upon an issue between the owner of the tax bill and the. owner of the lot. The contractor cannot rely upon the directions of the city engineer. [City of Springfield ex rel. Bank of Commerce v. Baxter, supra, and cases cited.]

Defendant did not attempt to sell a claim against the city, but a claim against this Baxter lot; and although there was no fraud on his part rendering the tax bill void, under the circumstances he should be held liable for not delivering what he undertook to sell and what the purchaser undertook to buy. [See: Delaware Bank v. Jarvis, 20 N. Y. 226; Challiss v. McCrum, 22 Kan. 157, 162; Gilchrist v. Hilliard, 53 Vt. 592.]

The doctrine of implied warranty extends to choses in action. [Tiedeman on Sales, sec. 185.] And unless there is an intention manifested otherwise there is an implied warranty of ownership in this case of the lien described, and the property in the lien is the right to enforce it. [2 Elliott on Contracts, sec. 1456; 1 Daniel on Negotiable Instruments (6 Ed.), secs. 730 to 734a inclusive.]

If the supposed lien were void and a recovery denied because of a forgery, or because it had been fully paid and discharged before it was sold, or because it was issued by no authority whatever, or because one was not the owner of it, what rational reason can be given to deny a recovery when it is shown that there was not at any time a lien that existed against the lot? [See note at page 924 of 22 Am. and Eng. Anno. Cases; also, 2 Am. and Eng. Ency. Law, 1090 ; 4 Cyc. 82; Norton on Bills & Notes, sec. 79.]

• Ogden on Negotiable Instruments, section 116, in discussing the liabilities of an assignor of a chose in action lays down the well-known rule that an assignor impliedly warrants that the parties to a contract are competent to enter into a contract, and that where there is a breach of warranty in this respect the assignor must answer to the assignee. It is stated, however, that there is one exception to this rule, which is that there is no such implied warranty in cases of sales of government securities. [See, also, Tiedeman on Commercial Paper, sec. 244.] The reason given is that a governmental body, in order to issue securities, must comply with th.e legislative acts and requirements of law; that is, the validity of its proceedings must depend upon a conformance to certain laws which are as well within the knowledge of the purchaser as of the seller. This knowledge of invalidity cannot be when the defect making the chose absolutely void and nonexistent is not connected with the proceedings but is an independent fact or act known only to those to whom it is brought home.

This exception as to government securities and the reason therefor should be borne in mind in reading some of the cases relied upon by the appellant. For instance, it is held in Otis v. Cullum, 92 U. S. 447, 23 L. Ed. 496, that an assignor does not warrant impliedly against a defect growing ont of proceedings under which the city bonds were issued. It might be said that the defect rendering the bonds void was not in that case latent, but patent, because it appeared in the acts and proceedings on the records of the governmental body. That case has been affirmed by the later decisions of the Supreme Court of the United States cited by appellant, and is also recognized and affirmed in Meyer v. Richards, 163 U. S. 385, 41 L. Ed. 199. At any rate when the public securities are void because of invalid proceedings or void legislative acts the purchaser of such securities, in the absence of fraud or express warranty, takes them at his risk. In the case last mentioned, however, where the defect was not disclosed on the face of the bonds nor in the proceedings under which the bonds purported to be issued, but grew out of an independent collateral wrongful act, it was held that the bonds transferred were never infused with life and that an assignor thereof must answer to his assignee for the purchase money.

The case of Ruohs v. Third National Bank, 28 S. W. 303, was where the defect was in the public proceedings of a city in issuing bonds and falls within the rule announced in the case of Otis v. Cullum, supra.

In the case of Richardson v. Marshal County, 45 S. W. 440, a recovery was allowed on facts similar to those in the case of Meyer v. Richards, supra. In the case just mentioned a number of cases are discussed and in all of them falling under our observation where a recovery was permitted it was where the defect rendered the chose in action an absolute nullity and where such defect was not one that was discoverable on its face or by going to the authority under which it was issued and inspecting the proceedings.

A case similar to that of Meyer v. Richards is Rogers v. Walsh, 10 N. W. 467, afterwards followed in Walsh v. Rogers, 18 N. W. 135.

The ease of Littauer v. Goldman, 72 N. Y. 506, 28 Am. 171, is the only case we have examined that holds squarely with the appellant’s contention, hut the decision therein rendered has been criticised in Meyer v. Richards, and in 1 Daniel on Negotiable Instruments (6 Ed.), sec. 733a.

It is pointed out in Meyer v. Richards that the recovery is allowed on the principle of a breach of a condition of the contract of sale (that is, the thing sold must be what it is described as being or what it purports to be), rather than on the theory of an implied warranty, which principle the writer of that opinion says the courts, in dealing with this question, have at times misnamed by speaking of it as- an implied warranty.

In our case, whether it be placed on the ground that it is a breach of the condition, or a breach of an implied warranty, a recovery should be permitted.

We find the following language used in 1 Daniel on Negotiable Instruments (6 Ed.), sec. 733a, p. 842, in discussing the rights of an assignor: “. . '. every reason that authorizes his recovery when it is void for forgery, applied when it is void for any other cause which disables him from enforcing it against those apparently bound. ’ ’

The defendant had no lien on the lot described in the tax bill, and when he sold it to plaintiff, plaintiff had no more right under what it received than it had prior to parting with its money. The consideration, therefore, wholly failed by reason of the void character of the paper. [Harlow v. Putnam, 124 Mass. 553.]

The doctrine herein announced was recognized by this court in the case of Hill v. Dillon, 176 Mo. App. l. c. 203, 161 S. W. 881, in this language: “Where that which is assumed to be bargained and sold has no existence, a different principle applies; and for this reason it has been held that the sale of a void patent, or of a license thereunder, would not be consideration for a contract,” citing Harlow v. Putnam, just referred to. In the case of Hill v. Dillon, the purchaser received what he bargained for, that is, stock in a corporation. He lost his money because the stock was not worth what he thought it was. If, in that case, when he bargained for stock, there had been delivered instead valueless chips and whetstones, the result would have been otherwise. Here, it is not contended that had plaintiff got what it bargained for — that is, a lien on the Baxter lot — it could then have recovered if it developed that the lot was not worth what plaintiff thought it was; but plaintiff’s recovery is based upon the ground that defendant bargained with plaintiff to deliver to it a lien on property when in fact no lien whatever was delivered because none had ever' been created.

At the oral argument, counsel for appellant contended that the defect in this tax bill was a latent defect unknown to the seller and that he should be goverened by the same rule as to implied warranty that governs in the case of the sale of a horse apparently sound but in fact diseased which condition was unknown to both seller and buyer. We think, however, that this case falls within the rule permitting a recovery where the seller sells a dead horse to the purchaser, the recovery in which case is not based upon an implied warranty at all but on a failure of one of the conditions of his contract — that is, that he will deliver that which he purports to sell, and fails to do so. Or it may be compared to the case where one agrees to sell corn but in fact delivers wheat.

We therefore hold that the defect making this tax bill a nullity- — not arising out of a failure of the city council to take the proper steps in its proceedings nor out of any invalid law or ordinance — but growing out of an entirely independent collateral act rendering defendant’s claim against the Baxter lot void ab initio, constitutes a total failure of consideration, which requires that he- pay back the money he acquired in exchange for the void paper.

This being the decisive question in the case it is enough to say that we have examined other points raised by appellant and find that reversible error was not committed at the trial.

The judgment is affirmed.

Robertson, P. J,, concurs. Sturgis, J., concurs in the result. .