Levy & Cohn Mule Co. v. Kauffman

114 F. 170, 52 C.C.A. 126, 1902 U.S. App. LEXIS 4080

• Court: Court of Appeals for the Fifth Circuit
• Decided: February 25, 1902
• Docket: No. 1,097
• Status: Published

Opinion

SHELBY, Circuit Judge,

after stating the case as above, delivered the opinion of the court.

There is no conflict in the evidence on the question of the consideration of the contracts sued on. The drafts were drawn by Joseph Weill & Co. in favor of Jacques Levy on H. Kauffman. Kauffman accepted the drafts by writing his name across each of them. Pie did not owe the drawers, and had no funds of theirs in his hands. He was an accommodation acceptor, lending his name to the drawers to enable (hem to raise money. Before the maturity of the drafts they were indorsed by the payee to the plaintiff for the account and benefit of Joseph Weill & Co. for $15,000, the face value of the drafts. By the direction of Joseph Weill & Co., $10,000 of the proceeds of the drafts ivas applied to the payment of their past-due debts to the Levy & Cohn Mule Company, and $5,000 to the payment of their debt to H. Kauff-man. The bills sued on, therefore, cost the plaintiff $15,000, placed subject to the order of Joseph Weill & Co. But as part of this sum came back to or never really left the plaintiff’s possession, the real transaction is stated more favorably to the defendant in this way: The plaintiff obtained possession and title to the drafts by paying $5,000 in discharge of a debt which Joseph Weill & Co. owed H. Kauffman, and canceling and discharging past-due debts for $10,000 which Joseph Weill & Co. owed plaintiff. The application of the fund in both instances .was by the direction of Joseph Weill & Co. On the question of consideration there is no difference in receiving a negotiable bill or note before maturity in payment of a pre-existing debt, and in paying cash for it. This is the conclusion of the best-considered and most numerous state authorities (1 Daniel, Neg. Inst. [4th Ed.] § 184), and is the doctrine unquestionably settled by the supreme court (Swift v. Tyson, 16 Pet. 1, 10 L. Ed. 865; Brooklyn City & N. R. Co. v. National Bank of Republic, 102 U. S. 14, 26 L. Ed. 61; 4 Rose, Notes on U. S. Rep. 133). And a pre-existing debt “is equally as valid and sufficient consideration for the indorsement and transfer to the creditor of the bill or nofe of a third party. * * ⅜” 1 Daniel, Neg. Inst. (4th Ed.) § 184. The fact that Kauffman, the accommodation acceptor of the bills, did not receive the benefit of $10,000 of the bills, does not affect the case. He did get the benefit of $5,000 of the proceeds of the negotiation of the bills; but, if he had received nothing, the bills would have been valid in the hands of the plaintiff. The evidence in the case and the nature of the transaction show that it was not contemplated that the consideration for the sale of the drafts was to go to Kauffman. The parties to every accommodation note or bill by their signatures hold themselves bound to every person who shall take the same for value, to the same extent as if that value were personally paid “to them, or on their account and at their request.” Story, Prom. Notes (6th Ed.) § 194; Townsley v. Sumrall, 2 Pet. 170, 7 L. Ed. 386. It is for the benefit and convenience of the commercial world to encourage as far as practicable the credit and circulation of negotiable paper. Accommodation bills are daily placed in market for discount and sale, and an indorsee or purchaser who knows that a bill or note “still current was drawn, made, accepted, or indorsed without consideration is as much entitled to recover as if he had been ignorant of the fact.” 1 Daniel, Neg. Inst. (4th Ed.) § 790, and cases there cited. Want of consideration to the accommodation acceptor or indorser will constitute a good defense against the party for whose accommodation it is made, — as, in this case, if Joseph Weill & Co. were suing Kauffman, — but to allow such defense to defeat a recovery by an indorsee for value, who has advanced money on it, “would be to defeat the very purpose for which such paper is made, and render the transaction absurd.” Thatcher v. Bank, 19 Mich. 196, 202.

When Kauffman accepted the bills, he authorized the plaintiff or any one to receive them on the credit of his name, and the consideration paid by the plaintiff for them was in law paid by his direction and order. Kauffman’s defense on the question of consideration is that he accepted the drafts in suit because he was the father-in-law of Joseph Weill, and a large creditor of Joseph Weill & Co., and so interested in relieving that firm of financial embarrassment; and that for these reasons, and on the promise of Jacques Levy, for himself and the plaintiff, to advance $15,000 for the relief of Joseph Weill & Co., he (Kauffman) accepted the drafts in suit. The contention is that the advance of $15,000 by Jacques Levy to Joseph Weill & Co. was to be the consideration for the acceptances by Kauffman, and that, as this advance was not made, the acceptances are without consideration. These mixed motives that induced Kauffman to accept the drafts cannot be separated and all eliminated but the promise of Jacques Levy, so as to hold that his failure to comply with his promise changed Kauffman’s relation to the drafts from that of an accommodation acceptor to that of an acceptor for a consideration. The undisputed facts show a full consideration proceeding- from the plaintiff for its ownership of the drafts. The facts, therefore, averred by Kauff-man of his relationship to Joseph Weill as kinsman and as creditor of Joseph Weill & Co., and the alleged agreement of Jacques Levy, must be considered, not as consideration for the acceptance by him of the drafts, but as motive or inducement causing him to accept them. “There is a clear distinction sometimes between the motive that may induce to entering into a contract and the consideration of the contract. Nothing is consideration that is not regarded as such by both parties. It is the price voluntarily paid for a promisor’s undertaking. An expectation of results often leads to the formation of a contract, but neither the expectation nor the result is ‘the cause or meritorious occasion requiring a mutual recompense in fact or in law.’ ” Philpot v. Gruninger, 14 Wall. 570, 577, 20 L. Ed. 743; Morris v. Norton, 21 C. C. A. 553, 75 Fed. 912, 926; Colorado Co. v. Stratton (C. C.) 95 Fed. 741, 744; Association v. Wickman, 141 U. S. 564, 579, 12 Sup. Ct. 84, 35 L. Ed. 860. It follows that in the record there is no evidence of entire or partial failure of consideration.

The defendant, Kauffman, by answer claims that there should be no recovery in this suit because Jacques Levy failed to comply with, an oral agreement, made by him when the defendant accepted the bills, that he (Jacques Levy) would not only procure the bills to be discounted, but would himself advance to Joseph Weill & Co. $15,000, so that the latter would have $30,000 to aid them in their financial troubles. When oral evidence was offered tending to prove this agreement, the plaintiff duly objected to it, and reserved an exception to its admission. Part of the charge of the court to which exceptions were reserved was based on this alleged contract, and the verdict of the jury indicates by its amount that it is founded on this oral agreement. When Kauffman accepted the bills he became the primary debtor. I Daniel, Neg. Inst. § 532. Although he wrote nothing but his name, the acceptance was a shorthand contract in writing, and is fully protected by the familiar and fundamental rule that oral evidence will not be received to vary its terms. Martin v. Cole, 104 U. S. 30, 37, 26 L. Ed. 647. The contrary has been held by some courts, and notably by Mr. Justice Washington in Bridge & Bank Co. v. Evans, 4 Wash. C. C. 480, Fed. Cas. No. 13,635; but the latter case was expressly rejected in Bank v. Dunn, 6 Pet. 51, 8 L. Ed. 316. Since the decision of the supreme court in the case last cited in 1832 it has been the rule of that court, approved and followed by the weight of state authorities, that evidence cannot be received of a contemporaneous parol agreement to vary the written contract of acceptance or indorsement of negotiable paper. Martin v. Cole, 104 U. S. 30, 26 L. Ed. 647. In a suit by payee against drawer of a bill of exchange, parol evidence of an agreement not to present the draft until defendant should provide for a previous draft was rejected. Brown v. Wiley, 20 How. 442, 15 L. Ed. 965. In Specht v. Howard, 16 Wall. 564, 21 L. Ed. 348, in a suit by the indorsee against the indorser of a note silent as to the place of payment, parol evidence was rejected that there was an agreement between the maker and the indorsee that it should be made payable in New York. The court said with reference to the agreement that it was a nullity, and could not in any wise affect the rights of either of the parties, and quoted 2 Pars. Notes & B. § 501: “It is a firmly settled principle that parol evidence of an oral agreement alleged to have been made at the time of the drawing, making, or indorsing of a bill or note cannot be permitted to vary, qualify, or contradict, to add to or subtract from, the absolute terms of the written contract.” In Forsythe v. Kimball, 91 U. S. 291, 23 L. Ed. 352, the same rule was applied in equity. Parol evidence of the agreement which Kauffman pleads would not be admissible in litigation between Kauffman, as acceptor, and Joseph Weill & Co., as drawers, of the bill. It would be excluded upon the familiar rule already quoted. A collateral written agreement, however, is admissible in an action on an acceptance between the original parties. In a case where such an agreement was in writing the court said: “The agreement, being in writing, is to be taken and considered in connection with the indorsement, and the two are to be construed together.” Davis v. Brown, 94 U. S. 423, 427, 24 L. Ed. 204.

It appears to be settled by the decisions of the supreme court that a relevant contemporaneous written agreement is admissible in evidence in an action on notes or bills between the original parties, but not admissible against an indorsee without notice for value, and that evidence of an oral agreement is not admissible in either case. In asserting the agreement as a defense, Kauffman merely claims that his acceptance was upon condition that Jacques Levy was also to advance $15,000 to Joseph Weill & Co., so that'with the proceeds of the accepted bills they would have $30,000. It is a familiar principle that any conditions which are annexed to a written acceptance must appear on its face. It is true that the acceptance may be rendered conditional by another contemporaneous writing; but even then such condition would have no effect against a bona fide holder ignorant of it. It follows from the principles established by the decisions already quoted that “the terms of an acceptance in writing cannot be varied by any contemporaneous parol agreement, as that is against the first principles of the law of evidence.” 1 Daniel, Neg. Inst. (4th Ed.) § 517. We cannot disregard well-settled, principles of law in an effort to equalize losses between the parties. Such efforts have produced much of the conflict of authority we have on this subject. Mr. Justice Grier, in Brown v. Wiley, supra, remarked, after rejecting parol evidence that would have altered a contract shown by a bill of exchange, that “some precedents to the contrary may be found in some of our states, originating in hard cases; but they are generally overruled by the same tribunals from which they emanated, on experience of the evil consequences flowing from a relaxation of the rule.” In what we have said we have had no reference to what would be the rule of evidence in cases of fraud or mutual mistake of facts.

There is another view that is conclusive of the case on the record •now before us: The general proposition is true that notice of facts to an agent is constructive notice to the principal when it arises from, or at the time is connected with, the subject of his agency. The rule is based on the presumption that the agent has communicated such facts to the principal. On principles of public policy, the knowledge of the agent is imputed to the principal. But neither the rule nor the reasons for it apply to a transaction in which the agent is acting for himself. When, therefore, the president of a corporation is dealing with it on- his own business, his interest is opposed to its interest, and the presumption is that he will not communicate any secret infirmity of the title he is about to convey to the corporation. Both the defendant’s answer and the evidence show that Jacques Levy, so far as-he was -connected with Kauffman’s acceptance of the bills, was acting with the view of aiding the firm of Joseph Weill & Co., because of his'interest in his nephew, Armand Levy, a member of that firm. He was not acting in the interest of the plaintiff corporation. In assigning the bills to: the corporation, he was not acting in his capacity -as president of the plaintiff corporation, but individually. Under such circumstances,, if it be .conceded there were infirmities attending the acceptance of the bills, and that there was, as between the parties, a failure or partial failure of consideration, he is not presumed to have informed the plaintiff of these facts. Notice of such facts, under the circumstances, to Jacques Levy, although he was president of the plaintiff corporation, was not notice to the corporation. When Jacques Levy was negotiating the notes to the plaintiff corporation, he was acting for himself, and his interest was antagonistic to that of the plaintiff. He was not the plaintiff’s agent in that transaction. In making the sale of the bills he stood as a stranger to the corporation; and the plaintiff, therefore, is an innocent holder without notice, even if it be conceded that Jacques Levy had knowledge of facts that would affect the validity of the bills. Mr. Thompson says: “It should be borne constantly in mind that the cases where notice to the president, or any other officer of a corporation, will affect the corporation, arc cases where such president or officer is acting exclusively for the corporation.” 4 Thomp. Corp. § 4657. Cases applying this principle where a president or director procures the discount of notes by the corporation in .which he is an officer are collected by Mr. Thompson in 4 Thomp. Corp. § 5208. This principle was recognized and applied by iliis court in Bank v. Tompkins, 6 C. C. A. 237, 57 Fed. 20. In that case it was held that “where a bank acquires title to real estate by conveyance from its president, who held the land under a deed reciting full payment of the purchase money, and it has no actual knowledge that the purchase money was not in fact paid, it is an innocent purchaser without notice, and is not chargeable with constructive notice because of the knowledge of its president.” See, also, Morawetz, Corp. (2d Ed.) 540c; 4 Thomp. Corp. §§ 4637, 5206, 5208; Barnes v. Gaslight Co., 27 N. J. Eq. 33-37; Bank v. Cunningham, 24 Pick. 270, 35 Am. Dec. 322; Bank v. Lewis, 22 Pick. 31, 32; Koehler v. Dodge (Neb.) 47 N. W. 913, 28 Am. St. Rep. 518; Whelan v. McCreary, 64 Ala. 319; 1 Morse, Banks, 104. The instructions to the uiry by the learned judge in the circuit court were in conflict with the views we have expressed, and to the injury of the plaintiff in error, the Levy & Cohn Mule Co.

We find no error in the record on the cross writ of error to the injury of TI. Kauffman.

The judgment of the circuit court is reversed, and the cause remanded with instructions to grant a new trial. Reversed.