Diamond Distilleries Co. v. Gott

126 S.W. 131, 137 Ky. 585, 1910 Ky. LEXIS 603

• Court: Court of Appeals of Kentucky
• Decided: March 11, 1910
• Status: Published

Opinions

Opinion op the Court by

Judge Settle

• — Affirming.

The appellee, S. B. Gott, of Paducah, Ky., was sued in the court below by the appellant, Diamond Distilleries Company, of Cincinnati, Ohio, upon the following note:

“$4,000.00. Paducah, Ky., Feby. 19, 1907.

“Four months after date I promise to pay to the order of Thompson, Wilson & Co. four thousand & 00-100 dollars at Office Diamond Distilleries Co., Cincinnati, O., value received. Due June 19.

“S. B. Gott.”

The note was indorsed and delivered by Thompson, Wilson & Co., of Paducah, to the appellant as collateral security for the payment of a much larger sum due it from that company. When executed by appellee and delivered to Thompson, Wilson & Go., the note was in words and figures as follows:

“Four months after date I promise to pay to the order of Thompson, Wilson & Co. four thousand & 00-100 dollars at................................. ..............value received. Due...............

It will be observed that, when signed by appellee and delivered to Thompson, Wilson & Co., there was a blank space of considerable length between the words “at” and “value.” This blank was after the delivery of the note by appellee to Rinkliff, agent and business manager of Thompson, Wilson & Co., before or at tbe time of its indorsement and delivery to Anderson, agent of tbe Diamond Distilleries Company, filled by Rinkliif who wrote therein between “at” and “value” the words “office Diamond Distilleries Co., of Cincinnati, 0.”

It was shown by the testimony of appellee, and admitted by Rinkliif, that appellee was not present when the place of payment was inserted in the note by Rinkliif; that he was not advised thereof, or asked to consent thereto, and, in fact, did not know of it until after the assignment of the note to appellant and after its maturity. • According to Rinkliif ’s testimony, appellant’s office at Cincinnati was added to the note as the place of payment, because he (Rinkiiif) did not wish it to be made payable at any of the Paducah banks. Anderson denied that he was present when Rinkliif inserted in the note the place of payment, or that he heard from Rinkliif any suggestion “that he did not wish it payable at a Paducah bank,” and testified that when he received the note it was in every particular as it now appears. It is therefore patent from the evidence that the words “office Diamond Distilleries Co., Cincinnati, 0.,” were inserted in the blank line or space above appellee’s signature to the note, after he had signed and delivered it to the agent of Thompson, Wilson & Co., and without his knowledge or consent. Without mentioning all the grounds of defense contained in the several paragraphs of appellee’s answer, it is sufficient to say that, as amended, it denied his liability upon the note and alleged its payment by him to Thompson, Wilson & Co., without knowledge on his part that it had been assigned and delivered by thatvcompany to appellant; and, in addition, charged the alteration of the note without his knowledge or assent by the insertion therein of the appellant’s Cincinnati office as the place of payment; that the alteration was a material one; and that by reason thereof he had been released from liability upon the note. The affirmative matter of the answer, as amended, was controverted by reply. The trial resulted in a verdict and judgment in appellee’s favor, and appellant, being dissatisfied therewith and at the refusal of the circuit court to grant it a new trial, has appealed.

It is insisted for appellant that appellee by executing and delivering the note with a blank line or space, indicating" that it was to be filled by writing therein the place of payment, gave to the payee or any holder of the note authority to fill such blank with a place of payment. Section 125, art. 8, Negotiable Instruments Statute (Laws 1904, c. 102), declares what changes or additions to a note will constitute a material alteration: “Any alteration which changes (1) the date, (2) the sum payable, either for principal or interest, (3) the time or place of payment, (4) the- number of the relations of the parties, (5) the medium of currency in which payment is to be- made, or which adds a place of payment, where no place of payment is specified, or any other change or - addition which alters the effect of the instrument in any respect, is a material alteration.” Section 124 of article 8 declares the'effect of a material alteration: “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. But when an instrument has been materially altered and is in the hands of a holder in due course, not a party to the alteration, he may enforce payment thereof, according to its original tenor. ’ ’ Another important provision of the statute in question is found in section 14 of article 1, viz: “Where the instrument is wanting in any particular, the person in possession thereof has prima facie authority to complete it by filling up the blanks therein. # *

The foregoing provisions of the statute are but' restatements of the law with respect to negotiable instruments, as it has long been recognized by the courts of this state. Manifestly a note executed and delivered by the maker in the form originally presented by the one under consideration is not upon its face a completed instrument. When one ^executes a.nd puts in the hands of another a note provided with a blank line or space, apparently intended to be filled with the name of a bank, or other place of payment, any holder in due course of the note has prima facie authority to fill such blank; and especially would such authority be implied where the blank line or space immediately follows a word which unmistakably indicates that it is to be filled with the place of payment. The word “at” in the note executed by appellee with the blank or space following it was well calculated to produce in the mind of any holder of the note a reasonable belief that the filling of the blank with a place of payment was necessary to comísete the instrument, and that he was authorized, if not invited, to fill it. Indeed, if the blank therein was not such a one as the framers of the statute, supra, contemplated should be filled by the “person in possession thereof,” it would be difficult to conceive of a blank that would justify the prima facie right to fill it conferred by the statute.

Unless the alleged arrangement by which appellee claims he was to pay the note and his defense of payment interposed a bar to appellant’s right to recover thereon, which we will presently consider, we should be bound to hold that appellee’s leaving of the blank in the note for inserting the place of payment conferred upon Rinkliff, the agent of Thompson, Wilson & Co., authority to fill it, and that the same implied authority would have given Anderson, as agent of appellant, the right to fill the blank with the place of payment after the assignment of the note to his principal. Ample authority on this subject may be found in the decisions of this court; a case in point being that of Cason v. Grant County Deposit Bank, 97 Ky. 487, 31 S. W. 40, 17 Ky. Law Rep. 344, 53 Am. St. Rep. 418. The bank sued Cason upon a note of $200, executed by the latter to Siddons, and which Sid-dons, before its maturity, sold and indorsed to the bank. When executed by Cason, the note read as' follows:

“Dolls $200. Williamstown, Oct. 2, 1889.

“Three months after date I promise to pay to the order of G. W. Siddons two hundred dollars........ at.................................value received. Due .......................

“Chapman Cason.”

After signing and delivering the note to Siddons, the blanks were filled by inserting the word “payable” before the word “at” and words “Bank of Williamstown, Ky.,” after the word “at,” thereby making the note “payable at the Bank of Williams-town, Ky.” After the filling of the blanks therein as indicated, the note was indorsed to and discounted by the Grant County Deposit Bank. Cason by answer resisted its payment upon the grounds that he had been released from liability upon the note, because of the filling of the blanks therein, as indicated, by Siddons or some one else after its execution by him and without his knowledge ortconsent,- and that such filling of the blanks was fraudulently done and was wholly unauthorized by him. The bank by reply traversed the averments of the answer, and, in substance, alleged that the filling of the blanks in the note was authorized by Cason; that it discounted the paper in good faith and for a valuable consideration at the request of Siddons before its maturity, and without notice of any infirmity therein. Judgment went against Cason in the circuit court, and was later affirmed on appeal. In discussing in the opinion the legal effect of the filling of blanks in a note as was done in that executed by Cason, the court, Judge Pryor writing, said: “"Where one signs a paper in blank, or partly in blank, when so written when signed and delivered as to show upon its face that a blank is left to fill up as to amount, or where payable, there is an implied authority to the holder to fill up the blanks in accordance with the general character of the instrument, and, when this is done by the payee, it is not such an alteration as will invalidate the paper as to one who takes it for value without notice. * * *”

Mr. Daniel, in his work on Negotiable Instruments, says: “ * * * Where after the word £ at ’ a blank was left and it was filled and made payable at an unauthorized place, it was held that the word at’ implied that the blank space succeeding it might be filled before the note should be delivered with a designated place of payment.” 2 Daniel, Nego. Instr. sections 1405, 1406. In Kitchin, etc., v. Place, 41 Barb. (N. Y.) 466, the maker of a promissory note was sued. He denied liability upon the ground that the note had been, materially altered after its execution without his knowledge or consent by the filling of a blank space after the word “at” with words designating a place of payment. It was held that the holder of the note had implied authority to thus fill the blank. In Redlich v. Doll, 54 N. Y. 234, 13 Am. Rep. 573, the note as executed contained a blank space following the word “ at. ” The note was delivered by the maker to the payee with the agreement that the note should not be negotiated, but the latter in violation of the agreement filled the blank with" a place of payment and negotiated the paper. The court held the maker liable to a bona fide holder for value.

We do not think the fact that the place of payment inserted is fixed in another state would make any difference in the relations of the parties to the note. It may be true that the maker of a note would not contemplate that the place of payment would be fixed in another state, but by leaving a blank for the addition of the place of payment and thereby authorizing the holder of the note to insert it the authority conferred to fill the blank would be broad enough to give him as great a right to make the note payable in some other state, as in this. We do not think the case of Mitchell v. Reid’s Ex’r, etc., 106 S. W. 833, 32 Ky. Law Rep. 683, sustains the view of the law presented by appellee’s learned counsel. It is true that in that case the holder of the note by an addition made it payable in another state than the one in which the note was executed, and that this court held that the maker thereof was by the alteration released from liability on the note,. but the alteration in that case was made by striking from the note with a pen the name of the bank in Tennessee, at which it was made payable by the maker, and inserting in lieu thereof as the place of payment the name of a bank in the state of Mississippi. The change was made, too, after the maker had signed and delivered the note and without his knowledge or consent. Manifestly the holder of the note was in such case unauthorized to change the place of payment, and, as it was done in such a way as to mutilate the instrument, it was apparent that the alteration could have-been, and was, known to any subsequent holder of the note. Obviously this court could but hold that the alteration made the note void; and, while the court did say in the opinion that the alteration “subjected the paper to the laws of the state of Mississippi when the persons making the note .payable in the state of Tennessee may 'be presumed to have contracted with reference to the laws of that state, ’ ’ it was in substance admitted that the legal effect would have been the same, if the alteration had made the note payable at some other bank in the state of Tennessee. We may also add that the maker of a note may by his own laches make it possible for another to so alter it as to wholly change the terms and meaning, and yet compel Irim to pay it to an innocent holder. The estoppel arising from such negligence was applied by this court in the case of Blakey v. Johnson, 13 Bush, 197, 26 Am. Rep. 254, to a surety who had signed a note for his principal, negligently leaving a space above the signature of the principal, in which the alteration was written; and, notwithstanding the rule that a surety can only be bound by the very terms of his contract, he was held liable on the note to the payee, who was without knowledge of the alteration, because, but for his negligence in leaving the unnecessary blank space, the alteration could not have been successfully made.

In discussing the doctrine under which the surety was thus held liable, the court, by Judge Cofer, quoting with approval from Daniel on Negotiable. Instruments, section 1405, said: “There is a general principle which pervades the universal law merchant respecting alterations, a principle necessary to the protection of the innocent and prudent from the negligence and fraud of others. That is, when the drawer of the bill or maker of the note, has himself by careless execution of the instrument left room for any alteration to be made, either by insertion or erasure, without defacing it or exciting the suspicion of a careful man, he will be liable upon it to any bona fide holder without notice when the opportunity which he has afforded has been embraced and the instrument filled up with a larger amount, or different terms than those which it bore when he signed it. The true principle applicable to such cases is that the party who puts his paper in circulation invites the public to receive it of any one having it in possession with apparent title, and he is estopped to urge an actual defect in that which, through his act, ostensibly has none. The inspection of the paper itself furnishes the only criterion by which a stranger to whom it is offered can test its character, and, when that inspection reveals nothing to arouse the suspicions of a prudent man, he will not be permitted to suffer when there has been actual alteration.” Garrard v. Hadden, 67 Pa. 83, 5 Am. Rep. 412; Visker v. Webster, 8 Cal. 109; Rainbolt v. Eddy, 34 Iowa, 440, 11 Am. Rep. 152; Harvey v. Smith, 55 Ill. 224.

In onr opinion appellee was not released from liability upon the note on -account of the insertion therein of appellant’s Cincinnati office as the place at which it was to be paid, but because of the arrangement he made with Thompson, Wilson & Co. for paying the note, which was communicated to appellant’s agent, Anderson, when the note was assigned to appellant; and also because he paid the note under the arrangement referred to. In other, words, both appellee and Binkliif, Thompson, Wilson Sr. Co.’s agent, testified, in substance, that, when appellee executed the note, it was with the understanding between them that appellee would make weekly payments thereon to Thompson, Wilson & Co. until the note was fully discharged. Binkliif testified that when he for Thompson, Wilson & Co. assigned and delivered the note to appellant’s agent, Anderson, he informed him of the arrangement by which appellee was to pay the note. Both appellee and Binktiif also testified that appellee complied with this agreement by paying the whole of the note in installments on or before its maturity, which payments were all made to Thompson, Wilson & Co., and were by that company, according to Binkliff’s testimony, sent or paid to appellant at Cincinnati.

It is conceded that possession of the note passed to appellant by its assignment, which, of course, carried with it the right to appellant to transfer it to its Cincinnati office. And, though appellant acquired the note with the understanding that it was to be paid Thompson, Wilson & Co. by appellee, the latter were to pay the -money received of appellee to appellant at its, Cincinnati office, which as between the assignor and assignee made that the ultimate place of payment; and for this -reason appellant’s office in that city was inserted in the blank space in the note as the place of payment. The insertion in the note of the place of payment did not invalidate the note, impose any additional risk or burden upon appellee, or release him from liability. He was, however, discharged as stated by his payment of the note to appellant through Thompson, Wilson & Co. Anderson, appellant’s agent, did not deny that the arrangement by which appellee’s note was to be paid was communicated to him by Rinkliff when he received the note from the latter, nor did he deny that appellee paid the note as agreed, or that such payments were not sent' or paid appellant by Thompson, Wilson & Co. as received. It is true that Donnelly, appellant’s bookkeeper, testified that the note had not been paid, but this testimony only contradicted Rinkliff’s statement that the money paid by appellee to Thompson, Wilson & Co. in satisfaction of his note was, in turn, paid appellant by them, and did not in any sense disprove the payment of the note by appellee to Thompson, Wilson & Co., as testified by appellee and Rinkliff without contradiction. Anderson having accepted for appellant the assignment of the note with the understanding that it would be paid to Thompson, Wilson & Co. by appellee, and that Thompson, Wilson & Co. would pay appellant at its Cincinnati office the money received from appellee, by that arrangement made Thompson, Wilson & Co. its agent to receive from appellee what it paid on the note, and, if Thompson, Wilson &. Co. failed to pay appellant what they received of appellee in satisfaction of the note, the loss cannot fall on appellee, but must be borne by appellant.

The above undisputed facts demonstrate that appellant took the note with notice of the arrangement by which it was to be paid, and that appellee, though ignorant of the assignment of the. note, paid it to appellant, the assignee, through Thompson, Wilson & Co., in view of which it would be manifestly unjust to compel him to pay it again. We are aware that the trial court, after properly admitting the testimony as to the payment by appellee of the note under the' arrangement referred to, following the introduction of all the evidence erroneously excluded •it from the consideration of the jury, and submitted the case to them under a single instruction upon, what we think, was an improper issue, viz., whether the place of payment was inserted in the note without appellee’s consent and with the knowledge and approval of appellant, yet as it is patent that the verdict' of the jury was correct, and such as the admitted facts in respect to the payment by appellee of the note would have authorized the court to peremptorily instruct them to find, .justice requires that it be undisturbed.

Wherefore the judgemnt is affirmed.