Born v. Lafayette Auto Co.

145 N.E. 833, 196 Ind. 399, 41 A.L.R. 952, 1924 Ind. LEXIS 9

• Court: Indiana Supreme Court
• Decided: December 19, 1924
• Docket: No. 23,344.
• Status: Published

Opinions

Ewbank, J.

The principal question presented for decision is whether or not the .maker of a note, executed in renewal of a prior note which he had given as evidencing his debt for the price of personal property sold to him, can defeat an action on the renewal note by pleading and testifying that it was given without consideration, because the original for which it was exchanged was altered without his consent after its execution and before its renewal, where it appears that the alteration merely made the note express the real contract of the parties, and was made without any intention to defraud, and the maker of the note still keeps possession and retains the ownership of the property for which the original note was given, and makes no offer to return it. The note sued on was not altered. The only defenses set up were a general plea that it was given without consideration, and a special plea that the only consideration for it was a prior note which had been materially altered by the payee after its execution, without the maker’s consent. There was a reply of denial, and one confessing the alleged alteration, but alleging that, by mutual mistake of the parties, the original note did not express the contract entered into and that the alterations were made only to correct errors inadvertently made in writing that note, and that, as so altered, the original note expressed the contract and agreement actually entered into by the parties; that said original note was written on a printed blank which recited that the money was payable with “eight” per cent, interest after “maturity,” and that the alteration made it read “six” per cent, after “date,” which was what the parties had actually agreed upon; that after the date when such- note was made payable, the payee, at the request of the maker, agreed to accept a renewal note from him payable in thirty days, and, pursuant to such agreement, the maker executed the note sued on for the amount of the original note, plus interest thereon at six per cent, from date to the time the renewal note was executed; that, at the time the renewal note was executed, the defendant had full knowledge and notice that the note he was so executing was to renew the note agreed to have been made at the time'of the sale, with interest from date, and knew that the note being surrendered to him provided for interest from date at six per cent., and knew that, by such renewal, he was paying interest at that rate, whereby he ratified and confirmed the change and alteration of such note. There was no answer of fraud or that the defendant had rescinded. or attempted to rescind the contract of sale.

The trial court made a general finding in favor of the plaintiff, and rendered judgment against the defendant for the full amount of the renewal note, principal and interest, together with attorney fees. All the issues joined wTere thereby decided in favor of the plaintiff. Defendant filed his motion for a new trial for the reason, among others, that the decision is not sustained by sufficient evidence. As against an attack on that ground, the decision is supported by all inferences favorable to the plaintiff that reasonably may be drawn from the facts proved, and no presumptions can be indulged in favor of the defendant, who had the burden of proof to establish that there was no consideration. And the evidence falls short of conclusive proof that there was no consideration for the note sued on. There was evidence that the defendant bought from the plaintiff a Chalmer’s automobile for the agreed price of $1,600; that he told plaintiff the money to pay for it must come out of an estate then in process of settlement; that it was agreed that the car would be sold on four months’ time; that a note was then drawn up and defendant signed it, and it was again said that he was to have four months time; that the understanding was that defendant’s brother was to pay the $1,600; that defendant paid no money but signed and gave to plaintiff his note for that amount, payable in four months; that the note was written on a printed blank which recited that it was payable “with interest from maturity until paid, at the rate of eight per cent, per annum”; that in selling the car the salesman told defendant that he could buy it at four months at six per cent, from date, and he said “all right,” and that, in defendant’s presence, the salesman told the secretary of the. plaintiff company that defendant had bought the car and was giving $1,600 for it, and wanted four months and. six per cent, from date, and for him to draw a note at six per cent, interest; that the secretary then wrote the original note on a blank form, and defendant signed it; that the secretary did not read the printed part of the note; that the bookkeeper was then absent on her vacation, and, after she came back, she drew a line through the words “maturity” and “eight” and wrote in the words “date” and “six” without defendant’s knowledge; that the car was sold to defendant and thereafter he so stated in writing over his signature; that he alone signed each note; that after the original note came due, defendant was visited three times by representatives of the plaintiff company who asked him to pay it, and each time he said he would pay it soon; that the third time, he was asked to pay the original note, after it had matured, he said if they would give him thirty days longer, he would pay it, and offered to give a new note for it, and told the collector to add the interest on the note to the new note; that the collector did nothing at that time except to ask for payment and to tell him that, unless it was paid, plaintiff would have to sue; that the collector then had the note with him and did not know it had been changed after it was executed; that he then went to the bank, and the banker figured up the interest on the back of the original note for 209 days, his figures showing an addition of the days of the months, beginning with August, to and including February 25, on which date the renewal note was given; that only eighty-seven days after the expiration of four months from its date had then elapsed; that the general manager of the plaintiff company took the old note and the new one to defend ant’s office and handed to defendant the note sued on; that he signed it and the general manager then handed him the old one, and appellant kept the old note in his office, under his control, for nearly two months, and until after this action on the renewal note was commenced, on April 3,1915; that appellant was forty-three years old, with good sight, could read and write, had been engaged in the ice, coal and grain business all his life, and was president of a company engaged in that business, and had previously given and taken notes; that the renewal note was for $1,655.23- and that said amount in figures was written in the upper right hand corner; that the interest at eight per cent, after maturity would have been $26.58; that the renewal note read “with interest from date at the rate of six per cent, per annum”; that the alteration of the original note was made without any other intention except to make the note speak the contract as agreed upon; plaintiff’s general manager thought he had the right to change the note to what the contract really was, and that it was an honest transaction on his part; he was a mechanic and knew little about notes; that after executing the original note, defendant drove away in the purchased automobile, and afterwards drove it to Indianapolis, and left it in the possession of his brother, who still had it when this suit was begun nearly a year later. There was no evidence that the defendant ever returned or offered to return it to the seller, nor what he or his brother did with it. The defendant testified that he knew the original note, as drawn, provided for eight per cent, interest after maturity. The trial court could have drawn an inference that he knew the note was so corrected with a pen as to read with interest “from date at the rate of six per cent.,” instead of “from maturity at the rate of eight per cent.,” from the fact that he executed a renewal note covering interest for 209 days, in the sum of $55.78, as figured on the back of the old note, and kept the old note in his possession some months afterward and until he was sued, without objection to its validity or to the amount, whereas only eighty-seven days had elapsed after the first note matured when the renewal note was given, and the interest for that time at eight per cent, would be only $26.58.

There was much testimony disputing the evidence as above recited, but the weight of conflicting evidence was exclusively for the trial court, and this court is bound to accept as true what tends to sustain the decision, and to reject any testimony in conflict with it, as not having been believed by that court. The evidence above set out is sufficient to sustain a finding that the original note was not given and accepted as payment, but only as evidence of a debt which was to be paid at the end of four months. And so far as is necessary to uphold the decision appealed from, the trial court must be deemed so to have found.

The “Act relating to Negotiable Instruments” was in ' force when both the notes were executed, and when the alteration of the first one was made. That act contains provisions as follows: “Sec. 24. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration. * * * Sec. 25. Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time. Sec. 28. Absence or failure of consideration is a matter of defense as against any person not a holder in due course. * * ■ * Sec. 124. Where a negotiable instrument is materially altered without the assent of all parties liable thereon it is avoided, except against a party who has himself made, authorized or assented to the alteration and subsequent indorsers. Sec. 125. Any alteration which changes '* * * the sum payable, either for principal or interest, * * * or any other change or addition which alters the effect of the instrument in any respect, is a material alteration.” Acts 1918 pp. 120, 125, 126, 140, §§24, 25, 28, 124, 125; §§11383, 11384, 11387, 11483, 11484 Burns 1926, §§9089x, 9089y, 9089bl, 9089t4, 9089u4 Burns 1914.

Under this statute, the unauthorized alteration of the original note by the payee without the knowledge of the maker was sufficient to avoid it, even though the alteration only made it express the contract actually entered into, and was made without fraudulent intent, in the honest belief that the party making such alteration had the right to change it. After being so altered without the maker’s consent, it was no longer the instrument issued by the maker, and could no longer pass from hand to hand freed from all equities as between the original parties after the manner of a negotiable instrument. But the note sued on was never altered. That note was itself prima facie evidence that it was given for a sufficient consideration. The maker of that note had the possession and ownership of an automobile for which he had given nothing at all except the original note which was altered, and which was taken up by executing the note sued on. It is an established rule of law that where a negotiable instrument given for a debt which was not extinguished by its execution is avoided by an alteration made without fraudulent intent, the debt is not thereby satisfied or discharged, but that the holder of the instrument may recover on the original debt as if no note had been taken for it. “The general rule seems firmly established that in the absence of fraud the instrument only, and not the original debt is destroyed.” 2 Cyc 183; 2 C. J. 1181, 1182, citing many authorities.

“The presumption of a fraudulent intent being rebut ted, the plaintiff can recover under the common counts in the declaration the debt for which the note was given, as against the parties who received the consideration.” Keene v. Weeks (1895), 19 R. I. 309, 33 Atl. 446, citing authorities.

“If however, the alteration of the instrument was without fraudulent intent, while the instrument itself is invalidated thereby, yet it is well settled that the right to recover on the original consideration remains. Although the identity of the instrument may be destroyed, it ivill not operate to cancel the debt of which the instrument is merely evidence.” 1 R. C. L. p. 1006, §36.

“In determining whether an instrument is avoided by a material alteration, the intent or motive of the party can have but little play. In the consideration, however, of the effect of such an alteration upon the original debt for which the instrument was given the motives which prompted the change are of the greatest moment. If the alteration was fraudulent, it reaches not only the instrument, but the original consideration as well, and prevents a recovery upon either (citing authorities). * * * Where, however, the alteration was made without fraudulent intent, but in the correction of a mistake, etc., the reason for such a rule ceases, and it is well settled that such alteration does not preclude the party from recovering on the original consideration.” 86 Am. St. 122, citing many authorities. Edington v. McLeod (1912), 87 Kans. 426, 124 Pac. 163, 41 L. R. A. (N. S.) 230, and note; Ann. Cas. 1913E 315, and note.

“If a note be altered in a material part, without authority, after execution, that avoids the note. * * * If the alteration was made without fraudulent intention, the payee may resort to the original indebtedness, if that was independent of the note, and has not been discharged by the execution of it, and pursue the maker upon that.” Catching v. Ruby (1919), 91 Ore. 506, 513, 178 Pac. 796, 798; Savage v. Savage (1899), 36 Ore. 268, 59 Pac. 461; Booth v. Powers (1874), 56 N. Y. 22.

“The authorities sustain the proposition that where . the change has been made with the honest purpose to make the instrument conform to the agreement of the parties, the instrument will be destroyed by the alteration, if material, but the party making the change will be permitted to recover upon the original consideration for which the note was given.” Otto v. Halff & Bro. (1896), 89 Texas 384, 34 S. W. 910, 59 Am. St. 56; Forrest v. Tobin (1920), 226 S. W. (Tex. Civ. App.) 466.

“Thus, if a holder of a promissory note makes a material alteration in it after its execution but without any design to defraud, and in the belief that he has a right to alter it in order to make it conform to the original agreement of the parties,. such alteration does not deprive the holder of the right to elect to disregard the note and sue on the original obligation, provided the note was not accepted as payment thereof.” Columbia Grocery Co. v. Marshall (1914), 131 Tenn. 270, 278, 174 S. W. 1108, citing many authorities.

“To enable the appellants to defeat both the altered note and the right to recover on the original consideration, it devolves upon them to allege in their pleading and prove that such alteration was made for a fraudulent purpose. Neither did the answer allege this fraudulent purpose, nor did the proof attempt in the slightest degree to tend to prove fraud.” Bank v. Walton (1915), 187 Mo. App. 621, 624, 173 S. W. 56; Ramsey v. Utica Deposit Bank (1913), 156 Ky. 263, 160 S. W. 943.

“We think a fair review and analysis of the evidence demonstrates that the change in the note, which we have been discussing, was neither covinous nor fraudu lent, but was made with, the honest purpose to make it conform to the real agreement of the parties and that such alteration should not therefore discharge Baldwin from all liability. This was the rule laid down * * * in Otto v. Halff & Bro., 89 Texas 384. The argument of the court there seems to us, not only unanswerable, but so effectually to settle the question that further discussion or citation of authority is unnecessary.” Baldwin v. Haskell National Bank (1911), 104 Texas 122, 126, 133 S. W. 864.

In the case of Catching v. Ruby, supra, as in the case at bar, the action was brought by the makers against the payee in the courts of Oregon, to recover back money which they had been compelled to pay to an assignee of the note, who recovered judgment thereon against them in the courts of another state. It was alleged as an element of damages that the note was rendered void by a material alteration made by an agent of the payee without the maker’s knowledge. The trial court gave an instruction that if the indorsement on the note relied on as an alteration was placed there in good faith, for an honest purpose, the plaintiffs could not recover. After stating the rule of law as declared by the authorities cited above, the Supreme Court of Oregon said: “It follows that * * * (the defendants) might have surrendered the note in question, and proceeded ■ to collect the purchase price of the horse, even though the indorsement of payments upon the back constituted a material alteration, if such alteration were free from fraudulent intent, and therefore, if the payment of the debt could have been enforced against plaintiffs, they have not been damaged, and that instruction was proper.”

Likewise, in the case at bar, if the alteration of the original note made it express the real contract of the parties, and was made without a fraudulent purpose, in the honest belief that the party making it had the right to do so, as appellee alleged and its witnesses testified, and as the court found by its decision in appellee’s favor, then appellant's purchase of the automobile for which he had not paid anything at all, was a sufficient consideration for the execution of the renewal note.

Where a person honestly owes a debt, but it is not collectible by law because of the operation of some rule of law taking away the remedy for its collection, the moral obligation to pay his debt is a sufficient consideration for the execution of a note to secure it. Thus, a debt barred by the statute of limitation is a sufficient consideration for a note for the amount of the debt. Olvey v. Jackson (1886), 106 Ind. 286, 4 N. E. 149; 17 R. C. L. p. 890, §249. And a debt barred by an adjudication in bankruptcy will support a note given for the amount of such debt. Carey v. Hess (1887), 112 Ind. 398, 14 N. E. 235; Willis v. Cushman (1888), 115 Ind. 100, 105, 17 N. E. 168. And a debt incurred during minority upon a sufficient consideration will support a written promise to pay it made after becoming of age. Heady v. Boden (1891), 4 Ind. App. 475, 476, 30 N. E. 1119. A promise to pay a note by one who assigned it for value by indorsement, made after his liability as indorser had terminated through failure of the holder to sue the maker, is founded upon a sufficient consideration. Mardis v. Tyler (1850), 10 B. Mon. (Ky.) 382.

The appellant having agreed to pay $1,600 for an automobile which he and his grantee continued to own, possess and use, not having paid any part of the price, did not cease to be indebted by reason of the note which he gave for it being avoided by an alteration, made without fraud, in good faith, in an attempt to make the note express the contract really entered into; and the legal as well as moral obligation to pay such debt for the car, notwithstanding the destruction of the original note by its alteration, might be a sufficient consideration for the renewal note. The trial court having found that there was a sufficient consideration for such renewal note, its finding should not be set aside for insufficiency of the evidence where there was evidence such as we have set out above.

The judgment is affirmed.

Travis, C. J., dissents with, an opinion.