Hickman v. Sawyer

216 F. 281, 132 C.C.A. 425, 1914 U.S. App. LEXIS 1341

• Court: Court of Appeals for the Fourth Circuit
• Decided: May 26, 1914
• Docket: No. 1190
• Status: Published

Opinions

WOODS, Circuit Judge.

The controversy arises out of a contract made April 14, 1908, for the sale of a stallion by J. Crouch & Son, an Indiana partnership, to the defendants, citizens of North Carolina, under the name of the Columbia German Coach Horse Company. The contract of sale contained a guaranty on the.part of the sellers that the stallion would be a “satisfactory sure breeder” provided he should be kept in sound and healthy condition and should have proper care and exercise; and it was stipulated by the sellers:

“If tbe said stallion should fail to be a satisfactory sure breeder with tbe above treatment, then same shall be returned to us at La Fayette, Indiana, in as sound and healthy condition as he now is and in as good flesh by June 1, 1909, and we agree thereupon to take the said stallion back and to give the said company another stallion in his place.”

The contract on the part of the buyers recited the necessity of improving the stock of the country, and contained an agreement by the defendants as subscribers to the association to take shares aggregating $3,000, each of the par value of $300, and when all the shares were sold to give their three joint notes to J. Crouch & Son for $1,000 each, payable November 1, 1909, November 1, 1910, and November 1, 1911, with interest at the rate of 6 per cent The notes were given April 13, 1908; and after they fell due this action on them was brought December 12, 1911, by the plaintiff, Hickman, claiming to be an indorsee and holder for value without notice. After the testimony was taken the District Judge submitted to the jury the following issues, to which the jury responded as indicated:

“1. Was the execution by D. O. Sawyer, L. S. Spruill, J. G. Brickhouse, W. M. Brickhouse, Charles Boughton, H. H. Phelps, W. B. Spruill, H. T. Davenport, and J. W. Caboon of tbe notes sued upon procured by fraud and misrepresentation as alleged? Ans. Tes.

“2. Was tbe execution by defendants J. B. Parrisber, Benjamin Spruill, W. F. Owens, W. C. Alexander, and E. P. Cahoon of tbe notes sued upon procured by fraud and misrepresentation as alleged? Ans. Tes.

“3. Was tbe Merchants’ National Bank an innocent purchaser before maturity for value and without notice of Exhibits A and B? Ans. Tes.

“4. Is the plaintiff, Hickman, a purchaser for value of the notes marked Exhibits A 'and B? Ans. No.

“5. Was plaintiff, Hickman, an innocent purchaser for value and without notice of the note marked Exhibit C? Ans. No.

“6. What amount, if anything, is due the plaintiff by defendants on the notes sued on? Ans. -”

Upon these findings the District Judge entered judgment for the defendants. It is unnecessary to set out the assignments of error in detail, as the case turns on the question whether the District Judge should have directed a verdict for the plaintiff instead of submitting issues to the jury, and whether he should have given judgment for the plaintiff on the findings of the jury, or should have granted a new trial.

[1] 1. Laying aside for the moment the claim of the plaintiff that he is a purchaser for value without notice, we consider whether there was any evidence of fraud upon the part of- J. Crouch & Son in the contract of sale and the taking of the notes. Some of the defendants testified that McLean, who was the agent of Crouch. & Son in the transaction, read the notes to them as if each maker would be liable only to the extent of the par value of the stock subscribed by him, and also indicated in the reading that Combs, who was a horse dealer in Columbia, had signed the notes and become liable along with the others ; and Spruill, one of the defendants, testified that he could not write nor read writing, though he signed the notes with his own hand. There was no evidence that McLean knew that Spruill could not read writing, nor does it appear that the notes and contract were written and not printed. The defendants had abundant opportunity to examine the papers, and it was their duty to do so. A court cannot grant relief to one who in the full possession of all his faculties signs a written or printed contract, on the ground that he carelessly failed to even read the paper or make any examination of it, depending upon the statements of someone else as to its contents.

It is true that relief has been granted when persons exercising reasonable diligence have been mislead into signing a paper which had been cunningly substituted for the contract they intended to sign. But this is not a case of that sort. Having every.opportunity of seeing and reading the papers, the defendants signed without reading them, and they cannot now be allowed to say by parol that they intended to sign something different, and thus impeach their written contract. Upton v. Tribilcock, 91 U. S. 45, 23 L. Ed. 203; Dellinger v. Gillespie, 118 N. C. 737, 24 S. E. 538; Boyden v. Clarke, 109 N. C. 669, 14 S. E. 52.

[2] 2. If the proof of the failure of the horse to come up to the guaranty as a satisfactory and sure breeder stood alone, it would not be sufficient to protect the defendants against their contract of purchase, because they specially agreed that if the guaranty should fail they would take another stallion from the sellers in place of the one purchased. And it appears that after discovery of the failure of the guaranty they elected to keep the horse without claiming another, and finally sold him for their own benefit. It is well established that, when the parties agree upon the remedy which one of them is to have in case of a breach of the contract by the other, that remedy is exclusive. This rule was applied in the following cases similar to this: Walters v. Akers (Kv.) 101 S. W. 1179; Olimanns v. Poland (Tex. Civ. App.) 142 S. W. 653; Nave v. Powell, 52 Ind. App. 496, 96 N. E. 395; Crouch v. Leake (Ark.) 157 S. W. 390; Sturtevant Mill Co. v. Kingland Brick Co., 74 N. J. Law, 492, 70 Atl. 732; Bomberger, Wright & Co. v. Griener, 18 Iowa, 477; Chas. Hackley Co. v. Kennedy, 152 N. C. 196, 67 S. E. 488; Ancrum v. Camden Water, etc., Co., 82 S. C. 284, 64 S. E. 151, 21 L. R. A. (N. S.) 1029.

It is true that the remedy in this case is inadequate almost to the point of absurdity, since there was no stipulation whatever as to the quality of the other stallion that was to be given in exchange. But a court cannot on the ground of improvidence substitute other remedies for that which the part}*- himself has contracted to accept.

[3] 3. But the failure of consideration does not stand alone. The deception in the procurement of the contract which we now point out, and which was relied on by defendants, not only vitiates the contract in its inception, but' projects itself into the entire transaction, attaching- itself to the failure of consideration and magnifying it into evidence of fraud. The evidence is clear and undisputed that the defendants went into the purchase because of their faith in Combs as a dealer in horses and their reliance on the representation of McLean, the agent of the seller, and of Combs himself that he was joining in the purchase and incurring a common pecuniary risk. In order to deceive the defendants into the belief that Combs had faith in the enterprise and had joined in the venture, and that he would be stimulated to make the business a success, McLean and Combs not only led the defendants into that belief by false oral statements, but, to make sure of the deception, resorted to this artful trick: Combs gave his check for $300 as if in payment of his share of the purchase money of the horse; McLean had the check cashed and then paid the money back to Combs after entering a credit of $100 on each note as if Combs had made that payment on it. Fraud has assumed no more odious form than this. The bargain between McLean and Combs was not only coi'fupt, but was a breach of trust on the part of Combs participated in by the sellers ot the horse. Combs had entered into a partnership with the defendants, thus assuming to them a trust relation which required on his part the utmost good faith and disinterested effort for the common good; and he was corrupted by the agent proposing to sell to the association to act in the sellers’ interest by inducing the association to make the purchase. For such a nefarious bargain between the seller and one pretending to act in association with the buyers, the buyers may avoid the entire contract. The authorities on this subject are so numerous that only a f.ew are cited. Empire State Ins. Co. v. American Central Ins. Co., 138 N. Y. 446, 34 N. E. 200; Truslow v. Parkersburg, etc., R. Co., 61 W. Va. 628, 57 S. E. 51; De Buesche v. Alt, L. R. 8 Chan. Div. 315; Emmons v. Alvord, 177 Mass. 466, 59 N. E. 126; 31 Cyc. 1572.

It is true that if the buyer would rescind he must return the article purchased as soon as the fraud is discovered, but if the article has been disposed of, or for any other reason the return has become impossible before discovery of the fraud, the buyer may sue for damages for the imposition or may set them up as a counterclaim in an action brought by the seller for the purchase money. The usual measure of damages in such case would be the difference between the real value of the article purchased and the purchase price. May v. Loomis, 140 N. C. 350, 52 S. E. 728; 35 Cyc. 149.

In this case there was no proof whatever that the defendants knew of the corrupt bargain between Combs and McLean until after they had disposed of the horse, and hence had this been a suit on the notes brought by Crouch & Son the recovery could not exceed the real value of the horse sold.

This conclusion as to the rights of the defendants as against Crouch & Son is not affected by the terms of the guaranty providing that in case the horse should not turn out as represented the purchasers should return him and take another in its place. For this stipulation for the acceptance of another horse related only to the failure of consideration; it had no relation to fraud in the inception of the contract and provided no remedy for it. Indeed, as between the parties the written guaranty along with every other incident of the contract of sale was vitiated by the fraud.

[4] 4. We consider next whether there was such a preponderance of evidence that the plaintiff was a bona fide purchaser for value without notice before maturity of the third note indorsed by Crouch & Son to him, that the District Judge should have so held without submitting the issue to a jury. In North Carolina when a negotiable instrument has been obtained by fraud, the law lays the burden on the holder to prove by a preponderance of the evidence that it was indorsed to him for value, in good faith, before maturity. Third National Bank v. Exum, 163 N. C. 199, 79 S. E. 498; American National Bank v. Fountain, 148 N. C. 590, 62 S. E. 738. In this instance, the plaintiff testified that the last note maturing on November 1, 1911, was so indorsed to him. But this is utterly inconsistent with the fact that, a year and a half before he acquired this note, be had sued on the note which matured November 1, 1909, which had been transferred to him by the bank, and the defense of fraud in procuring its execution had been set up. As both notes related to the same transaction, • it is obvious that the defense of fraud set up to the first note furnished good reason to submit to the jury the issue of notice to the plaintiff of fraud in procuring the execution of the third note, and that their finding on that issue is well supported.

S. There is more difficulty as to the issue submitted whether the plaintiff, Hickman, was a “purchaser for value” of the two notes which had been previously indorsed to the American National Bank; the fact being, as found by the jury, that the bank was an innocent purchaser of the notes befoi-e maturity. If after maturity Hickman purchased from the bank, the innocent holder, he would be entitled to1 recover, although at the time of his purchase he had notice of the vice in the original transaction. This is on the principle that want of notice to the first indorsee confers upon him the right to collect- or transfer the instrument, and with the transfer goes the first in-dorsee’s own right of action. If this were not so, the value of negotiable instruments in the hands of bona fide indorsees before maturity would be impaired. Montclair v. Ramsdell, 107 U. S. 159, 2 Sup. Ct. 391, 27 L. Ed. 431; Aragon Coffee Co. v. Rogers, 105 Va. 51, 52 S. E. 843, 8 Ann. Cas. 623; Kost v. Bender, 25 Mich. 515; Glenn v. Farmers’ Bank of N. C., 70 N. C. 191; 7 Cyc. 938. Nor would it make any difference if the innocent purchaser chose to transfer the instrument for a nominal consideration, all his rights would nevertheless go to his assignees. If therefore Hickman himself was really the purchaser from the bank, the inquiry whether he paid value was entirely immaterial.

The real question made by the evidence was not whether there was a formal transfer by the bank to the plaintiff for value received from him therefor, but whether in that transaction the plaintiff was representing himself or Crouch & Son. The testimony of the officers of the bank supports that of the plaintiff that he paid the money, and that the bank transferred the notes in consideration of the payment. As the bank had paid full value for the notes, it is inconceivable that it would have assigned, them without value. There is no doubt that, if the plaintiff was the assignee at all, he was an assignee for value. The evidence leaves no room for controversy on that point. Hence it could make no difference that the fourth issue submitted presented the inquiry whether Hickman was a purchaser for value, for the real question was not as to the payment of value but whether he was himself a purchaser at all. The form of the inquiry might have been more definite in asking directly whether Hickman purchased and paid the money for himself or as the representative of Crouch & Son; but the inquiry whether Hickman was a purchaser opened and included the issue whether he represented himself or Crouch & Son, and that is the crucial question which the jury answered against the plaintiff in their response to the fourth issue.

Hickman testified that he had never been in North Carolina, and knew nothing of the responsibility of the makers of the note; that he could not remember how he found out -that the bank had these overdue papers; and that under these circumstances he bought the notes as an investment, intending to incur the expense of suit, although the notes made no provision for attorney’s fees. But what is still more significant, he testified that he had never made any demand on Crouch & Son, and that the law of Indiana required him to exhaust the makers before making demand on the indorsers; that he had never mentioned the notes to Crouch & Son, and had never notified, them of nonpayment; and that he had no understanding with Crouch & Son to reimburse him for expenses. It is significant, too, that no witness, not even a member of the firm of Crouch & Son, testified in support of this extraordinary story.

The extreme improbability of this statement is strong evidence against it. The inference that Hickman was acting for Crouch & Son was, under the circumstances, a fair and reasonable inference for the jury to draw. Cooking backward to the beginning of the transaction, the inference of duplicity and false pretense as to the ownership of the notes is greatly strengthened by the undisputed duplicity of Crouch & Son when they corrupted Combs, the pretended associate of the defendants. Crouch & Son were bound to take up the notes when they were dishonored, and it would be disregarding the obvious to say the evidence does not warrant the conclusion that the plaintiff paid the bank at their instance and as their agent. It is incredible that the plaintiff or any other reasonable man with no inducement but investment would have taken up the notes for himself or any one else but Crouch & Son, the indorsers. If Hickman did purchase the notes for Crouch & Son, as is implied by the finding of the jury, then they are the beneficial owners of the notes and against them and Hickman, their representative, the defense of fraud must prevail. We conclude that there was no error in refusing to direct a verdict and that the answers to all the issues submitted to the jury were well supported by the evidence.

[5] Nevertheless, the judgment of the District Court in favor o'f the defendants cannot stand, because under the evidence offered the plaintiff was without doubt entitled to recover the value of the horse. It is true that the answer sets up the expense of maintaining the horse as a loss to the defendants because of the seller’s fraud; and mention is made of this claim in the argument; but no evidence- was offered at the trial in support of it. It may be if there had been evidence on the point that it would have been the duty of the District Judge to submit an issue of the amount of this expense, and whether the seller’s fraud caused the useless expense, under the principle laid down by the United States Supreme Court in Sigafus v. Porter, 179 U. S. 116, 21 Sup. Ct. 34, 45 L. Ed. 113. But as that question is not before us, we express no opinion upon it.

As against Crouch & Son, the plaintiff is the legal owner and holder of the notes; as against the defendants, he stands in the shoes of Crouch & Son and is entitled to recover just what they would be entitled to recover had they sued on the notes. 2 Daniel on Neg. Ins. § 1192; note to Stewart v. Price, 64 L. R. A. 599; 30 Cyc. 78.

For this reason the judgment must be reversed and the cause remanded to the District Court for a new trial of an issue as to the real value of the horse, and of any other relevant issue made by the pleadings upon which evidence may be offered and which has not already been determined by the findings on the first trial.

Reversed.