Montgomery v. Crossthwait

90 Ala. 553

• Court: Supreme Court of Alabama
• Decided: November 15, 1890
• Status: Published

Opinion

MoCLELLAN, J.

One of the prominent questions presented by this record is, whether the stipulation in a promissory note to pay all costs of collecting, if not paid at maturity, destroys its negotiability. Upon no other question in the law, perhaps, are the authorities so irreconcilably, and at the same time so equally divided, both in respect to the number of adjudged cases, and the respectability of the courts upon either hand. The following cases maintain the commercial character of notes which embody the stipulation referred to: Stoneman v. Pyle, 35 Ind. 103; Pate v. Bank, 63 Ind. 264; Maxwell v. Morehart, 66 Ind. 301; Proctor v. Baldwin, 82 Ind. 370; Hubbard v. Harrison, 38 Ind. 327; Heard v. Bank, 8 Neb. 10; Sperry v. Horr, 32 Iowa, 184; Nickerson v. Sheldon, 33 Ill. 373; s. c., 85 Amer. Dec. 280; Dietrich v. Bayhi, 23 La. An. 767; Goar v. Banking Co., 11 Bush (Ky.) 180; Sewing-Machine Co. v. Moreno, 7 Fed. Rep. 806; Seaton v. Scoville, 18 Kans. 435; s. c., 26 Amer. Rep. 779; Bank v. Sevier, 14 Fed. Rep. 671; Trader v. Chidester, 41 Ark. 242; S. c., 48 Amer. Rep. 38; Bank v. Rossumssen, 1 Dak. 60; Schlessinger v. Arline, 31 Fed. Rep. 648; Howenstein v. Barnes, 5 Dillon, 482; Adams v. Addington, 16 Fed. Rep. 89.

And the following sustain the doctrine, that the stipulation involves such contingency and uncertainty as to the sum payable as to destroy negotiability: Bank v. Bynum, 84 N. C. 24; Bank v. Gay, 63 Mo. 33; Goodloe v. Taylor, 3 Hawks, 458; Bank v. Marlow, 71 Mo. 618; Samstay v. Conley, 64 Mo. 476; Bank v. Jacobs, 73 Mo. 35; Wood v. North, 84 Pa. St. 87; Johnson v. Spier, 92 Pa. St. 227; Bank v. Larsen, 60 Wis. 206; M. F. & M. Co. v. Newman, 60 Md. 584; Mahoney v. Fitzpatrick, 133 Mass. 151; Jones v. Radatz, 27 Minn. 240; Bank v. Purdy, 56 Mich. 6; Altman v. Rittenshofer (Mich.), 36 N. W. Rep. 74; Iron Works v. Paddock, 15 Pac. Rep. 574; Farquhar v. Fidelity Co., 13 Phila. 473.

The cpxestion has never been determined in this State. It was mooted somewhat in the case of Hanover National Bank v. Johnson, at the last term, ante, p. 549, and dismissed with an indication on the part of the present writer unfavorable to the negotiability of such ixxstruments. Such was the inclination of my mind at that time. A more careful investigation into the adjudged cases, and especially a xnore critical consideration of the reasons upon which the divergent coixclusions of other coixrts are made to rest, have prodxxced the contrary conviction, and lead me to adopt the view first advanced by the Indiana and Kentucky courts, and which has since received the sanction of all recognized texts which discuss the point. Tied. Com. Paper, § 28b; 1 Rand. Com. Paper, §§ 205, 206; 1 Daniel’s Neg. Instr. §§ 62, 62a; Par. Bills & Notes, pp. 146-7; 2 Amer. & Eng. Encyc. of Law, p. 324.

The cardinal pi’inciple, that the sum to be paid must be certain in amount, and not dependent upon contingencies, is fully recognized and accommodated in this doctrine. It is true, the stipxilation involves a contingency, in that there íxxay or may not be any costs of collection to be paid, depending primarily upon failure to pay the note at maturity, and, secondarily, upon whether the note should be paid, even after dishonor, without resort to attorneys, or legal proceedings. It is true, also, that the amount of such costs, if any, is uncertain. But it is fully assured that no costs will be incurred before maturity; and no costs will have to be paid at all, unless there is default in the payment of the sum promised at maturity, and the paper ceases by reason of that fact alone to be a circulating medium, performing in a sense the functions of money. So that as long as the paper, considered apart from the stipulation, would be negotiable, it will have that character, notwithstanding the stipulation. Looked at in this way, stipulated attorney’s fees, and costs of collection after maturity, stand upon the same footing, as to contingency of liability therefor, and uncertainty as to the amount thereof, as do protest fees, attorney’s tax fees, court costs and statutory damages, in the event a resort is had to legal remedies, to enforce payment; and it is not conceivable why the former class of charges should destroy negotiability, while the latter confessedly do not.—Stoneman v. Pyle, 35 Ind 103; Goar v. Banking Co., 11 Bush (Kv.) 180. The Pennsylvania court has said, that a “promissory note is a courier without luggage, travelling on the wings of the wind, and should not be lumbered up ” with provisions of the' class under consideration. Another high authority has declared, that a stipulation for attorney’s fees is “ not luggage, but ballast, ” and does not clog the circulation of the paper, but facilitates its progress. To further pursue the metaphor, it were, we think, more apt to say that the stipulation is neither luggage or ballast, and neither impedes or facilitates the flight of the paper through the transactions of commerce, since all persons are presumed to deal with it upon the assumption that it will be paid at maturity; but is for the well-being of the “ courier, ” when its monetary functions have been fully discharged, and its journey as a circulating medium has been brought to an end, by default in payment at maturity.

Our conclusion is, therefore, that the note sued on here was for a sum certain, the payment of which depended upon no contingency; and being payable at a bank, it is commercial paper within sections 2094, 2112 and 2113, Code of 1876, and sections 1756 and 177S, Code of 1886. The demurrer to the complaint, which proceeded on the contrary assumption, wras properly overruled.

We understand the law to be well settled, that a material alteration of a promissory note, by any of the parties thereto, discharges from liability thereon all other parties not consenting to or authorizing such alteration; and this without regard to whether the alteration is apparently or presumably to the benefit or detriment of the parties objecting. Courts can not undertake to say that a party would have made the contract as altered, and thus make it for him, merely because its terms are more favorable to him than those embodied in the original instrument, any more than a like conclusion could be justified where the alteration imports additional liability. In the one case, no less than in the other, the altered paper is not the contract which the party has made; and in neither case can the courts declare it to be his contract, or enforce it as such. The law proceeds on the idea, that the identity of the contract has been destroyed — that the contract made is not the contract before the court — that the party did not make the contract which is before tire court; and so adjudging, it can not go further and hold him bound by it, on speculations, however probable and plausible, that he would or ought to have entered into the altered agreement, because it involved less liability than the original and only paper executed by him. There are some expressions in the books to the contrary. They will, for the most part, and certainly so far as the adjudications of this court are concerned, be found in cases where the change was prejudicial to the party complaining; and this fact is made one of the reasons for the decision against liability, though it might as well have been rested entirely on the abstract fact of alteration. Thus, in the case of Toomer v. Rutland, 57 Ala. 379, reference is made to the prejudicial character of the alteration; but the conclusion there reached might better have been based solely on the change in the legal identity of the contract — a doctrine there fully recognized arguendo — entirely regardless of the effect upon the promisor. It was not decided in that case that an alteration favorable to the party seeking to avoid the instrument would not release him. The sounder doctrine, and certainly the one supported by the overwhelming weight of authority, is that stated in Bellinger & Ralls v. Anderson, 87 Ala. 334, arid there applied to a surety: that any material alteration, by one not a stranger to the paper, whether injurious or not, avoids the contract as to all parties not consenting. It is enough that, if the instrument were genuine, it would operate differently from the original; or, as otherwise expressed, avoidance will result, “ if the alteration is one which causes the paper to speak a language different in legal effect from that which it originally spoke. ”—Bank v. Douglas, 31 Conn. 170, 181; Gardner v. Walsh, 5 El. & Bl. 82; Morrill v. Otis, 12 N. H. 466; Reeves v. Pierson, 23 Hun, 185; Humphreys v. Guillow, 13 N. H. 387; Dickerson v. Miner, 43 Iowa; Lunt v. Silver, 5 Mo. App. 186; 2 Pars. Bills & Notes, 551-564; Tied. Com. Paper, § 394; 3 Band. Com. Paper, § 1743 ; and many other authorities.

Even were the rules of law otherwise, we are unable to see how appellee could be benefitted by it. The appellant might, for very good reasons, have preferred to indorse for Percy B. Smith, in preference to Percy B. Smith & Co., for aught this or the trial court could know. It may be, for instance, that Smith had abundant property to pay his individual debts, while the firm of Smith & Co. may be wholly insolvent, so that the indorser for Smith individually would be saved harmless, on a marshalling of assets, while the indorser for Smith & Co., forced to look to firm assets, with only the excess of individual assets after paying individual liabilities, would lose his claim in whole or in part. So that it could not be safely assumed that the change from “Percy B. Smith” to “Percy B. Smith & Co.” was beneficial to the indorser.

That the alteration was a material one, we have no doubt. The considerations just adverted to demonstrate that it was; and the authorities are full to the point, that the addition of other names as makers discharges parties already bound by the paper.—Cases supra; and Walsh v. Jewell, 21 Ohio, 170; Davis v. Coleman, 7 Ind. 424; Hall v. McHenry, 19 Iowa, 511; Henry v. Coates, 17 Ind. 161; Broughton v. Fuller, 9 Vt. 373; Bellenger ds Balls v. Anderson, 87 Ala. 334. The effect of adding “cl CoP was to make that partnership and the members of it, on the face of the paper, parties to it, whereas only one member of that firm, and he in his individual capacity alone, was a party to the original contract. The precise alteration here involved was adjudged to be a material one in the case of Haskell v. Champion, 30 Mo. 136.

Nor is it of moment in this connection that, in point of extraneous fact, the firm of Smith & Co. was not bound by the signature, because of a want of authority in Smith to sign the firm name to the paper. The court is to determine the materiality of the alteration by an inspection of the instrument. Evidence aliunde will be received to show the fact of alteration, and, in a proper case, also that the alteration was in accordance with the intention of the parties; bnt, with these excejttions, the court can not, on the question of materiality, look beyond the paper. Considering the original by comparison with the altered paper, it is to determine whether the latter, assuming its genuineness, evidences a contract materially variant from the former. It can make no difference that the parties, the addition of whose names constitutes the alteration, are not in fact bound by the instrument. On the face of it they are bound. On its face, therefore, the contract is not identical with the original. The legal identity of the first is destroyed, and parties not consenting thereto are discharged. Thus, in Haskell v. Champion, supra, it was ruled that the addition of “ds Co? to the maker’s name discharged the indorser, although there was no such firm, but the maker was a member of another firm. Here, the firm clearly was not bound; nobody was in fact bound but the original maker; but, ■on the face of the paper, not. onty he, but a firm of which he was a member, was liable. The question of materiality was ■determined not by the outside fact, but by the paper, and other j>arties were held to be discharged.

To the pleas which set up the alteration we have been discussing it was replied, that the defendant — indorser—with full knowledge of the alteration indorsed and signed a waiver of protest and notice of protest on the note, “and at divers times, both before and since the maturity of said instrument, ratified the signature signed thereto, and the supposed alteration of said instrument by said Smith, and promised to pay it,and also, generally, that the defendant had waived the right, and is now estopped to plead said alteration. Eliminating the legal conclusions alleged in these replications, there yet remain two averments of fact — that, with full knowledge of the alteration, the defendant waived protest and notice by indorsement ■of the note over his own signature, and promised to pay the ¿same. This, in our opinion, was a good replication to the matter pleaded, and the several demurrers to it were property ■overruled. These facts, standing, alone, constitute a waiver of the discharge otherwise operated by the alteration, or the adoption of the act of Smith in making the alteration. ’ The authorities are uniform to the point, that such an alteration may be made by the consent of the parties.—Ravisies v. Alston, 5 Ala. 297; Hill v. Nelms, 86 Ala. 442; Tied. Com. Paper, § 396; 3 Rand. Com. Paper, § 1766; 2 Daniell on Neg. Instr. § 412; 2 Parsons Bills & Notes, p. 565. And it is a very general pixqjosition, that an act which may be authorized, or consented to in limine, may be effectually ratified after it has been performed, and e converso.—Knox v. Armstead, 87 Ala. 510; Bank v. Gay, 63 Mo. 33, 39; Bank v. Warren, 15 N. Y. 577. At, least, it is certain that an alteration, such as is shown here, may be ratified by the innocent party affected by it, so as to bind him to all intents and purposes, as if he had fully authorized it. in the first instance. Bank v. Rising, 4 Hun, 793; Huntington v. Ballou, 2 Lans. 120; Kershaw v. Cox, 3 Esp. 246; Hazard v. Spears, 2 Abb. App. 353; Kilkelly v. Martin, 34 Wis. 525; Stewart v. Bank, 40 Mich. 348; Goodsped v. Cudler, 75 Ill. 534. And efficient ratification will be implied from facts such as are set forth in these replications.—Evans v. Foreman, 60 Mo. 449; Bell v. Mabin, 29 N. W. Rep. 331; Stewart v. Bank, supra; Grimstead v. Briggs, 4 Iowa, 559; Bank v. Middlebrook, 33 Conn. 95; Coriss v. Tattersal, 2 Man. & G. 590; Weeds v. Carpenter, 10 Wend. 403; Barnes v. Jewell, 2 N. H. 543.

Whether a new consideration is essential to support the contract thus made by ratification, there is some conflict of authority. The courts of Kentucky and Minnesota hold, that a new consideration is necessary.—Wilson v. Hayes, 42 N. W. Rep. 467; Warren v. Fant, 79 Ky. 1. But a great majority of courts of last resort, if indeed not all of them,, except in the States named, sustain the contrary doctrine. Bank v. Warren, supra; Pelton v. Prescott, 13 Iowa, 567; King v. Hunt, 13 Mo. 97 ; Prouty v. Wilson, 123 Mass. 297; Goodspeed v. Cutler, 75 Ill. 534; Stewart v. Bank, supra. With respect to this question, we adopt the language and conclusion of the Missouri court, in a strictly analogous case : “ There have been many refinements adopted about this doctrine of ratification; refinements which savor more of subtlety than of sound judgment. With some exceptions, not necessary to be adverted to here, the proposition is, however,, undoubtedly correct, that he icho may authorize in the beginning, may ratify in the end. . . ■ And there is, therefore, no force in the point urged on our attention, that there should have been a new consideration in order to attach validity to a confirmatory act. No independent consideration is required in the case of an accommodation indorser, surety, &c., in the first instance; and it is difficult to see why any thing more should be required on subsequent sanction than on original assent. ” —Bank of Trenton v. Gay et al., 63 Mo. 39.

Coming now to the bill of exceptions, it is first to be noted, that what we have said in relation to ratification of the alleged alteration, and to the effect that ratification may be inferred or implied from circumstances, and need not be supported by a new or distinct consideration, when applied to charges 4, 7, 8, 12,15 and 19, given at the request of the plaintiff, and charges 8, 16 and 19, asked by the defendant and refused, serves to determine the exceptions reserved to the action of the court in respect thereto, against the appellant.

The instrument sued on did not bear on its face any evidence of having been altered at any time. The burden of proving that it had been altered after indorsement was, therefore, upon the party who relied on that fact to defeat recovery against him. It follows that appellant’s exceptions to charges-1, 2 and 5, given at the instance of plaintiff, and to the refusal of the court to give charges 1, 2, 3, 4, 9 and 18, as requested by defendant, which proceed-on the theory that it was -upon the plaintiff to disprove the alleged alteration, are untenable. 2 Daniel’s Neg. Instr., § 1421; 3 Rand. Com. Paper, § 1785 ; Tied. Com. Paper, § 393; Barclift v. Treece, 77 Ala. 528.

Charge numbered 5, given*for plaintiff, is faulty in one of its clauses, when considered alone, in that it might be construed to authorize the jury to find according to the preponderance of evidence, regardless of whether such preponderance was sufficiently great to reasonably satisfy their minds. This fault is obviated in other portions of the instruction, where it is said the defendant must satisfy the jury, by a preponderance of the evidence, that the fact in issue is as he alleges it to be; and even were this otherwise, the appellant could not complain, for the error, if any, in the charge is favorable to him.—Mays v. Williams, 27 Ala. 267; Jarrell v. Lillie, 40 Ala. 271; Vancleventer v. Ford, 60 Ala. 610.

There was evidence which tended to show that the note was indorsed by the defendant before it was signed, and was delivered to Smith to be signed in such a way as would enable him to get the money on it for himself and" Montgomery. We hold that this agreement, if it existed, authorized Smith, so far as Montgomery was concerned, to sign the firm name of Percy R. Smith & Co. to the paper ; since, without any agreement, Smith had the right to fill up the blank by inserting his own name as maker; and to accord any operation to the agreement, it must be construed into a consent by the defendant to subscribing of the name of Smith’s firm. Whether Smith had, as between himself and his co-partner, the right to so sign, is immaterial. Montgomery’s consent to the thing that was done, estops him now to object to its having been done, whether Smith, in point of legal fact, had the power to do it or not. Charges 3 and 18, given for the plaintiff, find justification in these considerations.

We construe plaintiff’s charge numbered 6 to assert, that if the note was made on the joint account of Smith and Montgomery, and was indorsed by the latter before it had been signed, but afterwards, in pursuance of their agreement, executed by attaching thereto the name of Percy R. Smith & Co., Montgomery, having received his share of the proceeds, is bound by his indorsement. So construed, if this instruction has an infirmity, it lies in its being too favorable to the defendant. The fact postulated, that the signature of Smith & Co. was attached in consonance with the previous understanding between Smith and Montgomery, would, of itself, and wholly irrespective of Montgomery’s interest in the money borrowed, be quite sufficient to bind him. The appellant can take nothing on his assignment of error directed against this charge.

Charges 9,10,11,13 and 16, for plaintiff, as modified by the explanatory charge given in connection therewith, are correct expositions of the familiar rule of law applicable to the filling of blanks left in promissory notes at the time of indorsement.

The stipulation to “ pay all costs of collecting, not less than ten per cent.,” must be construed to refer to other than court costs, since the parties bound on the paper are liable for those without any agreement to pay them. Other costs of collection ordinarily consist of attorney’s fees ; andthe stipulation may be interpreted as if it provided for the payment of ten per cent, attorney’s fees, or a greater amount than that, if expended reasonably and properly in realizing on the note. ¡Stipulations to pay a given per cent, for the services of attorneys are held to import liability for reasonable compensation for legal services rendered in that behalf, not in excess of the amount limited. We do not think the stipulation here is for more than this ; and hence that it can be enforced to this extent in the present action. Charge 5 asked by defendant was well refused.

It would unduly extend this opinion, and serve no good purpose, to discuss the remaining charges requested by the appellant in detail. Enough has already been said, we think, to show that they severally are either affirmatively bad, as stating propositions which are unsound, or are abstract, or misleading, or invasive of the province of the jury. Not a few of them, for instance, are addressed to the question of defendant’s estoppel to rely upon the alleged alteration, and set forth that this, that and the other fact does not estop him to avail himself of it. This matter of estoppel was not nearly so prominent in the case as the question of ratification and promise to pay after knowledge of the alteration; and the tendency of all these charges was to mislead the jury into discharging the defendant, because he was not technically estopped to set up this defense, although they may have been fully satisfied that the defendant, being let in to make this defense, had utterly failed to sustain it with evidence.

Moreover, Ave are by no means prepared to say that the proposition of these charges is absolutely correct. On the contrary, AAre apprehend that the indorsement of a waiver of protest and notice of protest on a paper, as shown here, implies knowledge of all the paper contained at that time, and Avas such a recognition of its binding force as a contract as precludes the party from making any defense based on matters then apparent upon the face of the instrument; and certainly such would be the effect when the indorsement of the waiver is accompanied by a promise to pay the note.

We have examined the trial court’s rulings on evidence to* which exceptions were reserved, and find no error in them.

The statement of the witness Smith, that the loan of stock by Montgomery to him, to enable him to borrow money upon its security, “ was not considered a debt between us,” considered with the context of his answer to the interrogatory, was. no more or less than to say that there was no agreement that, he should pay Montgomery for the stock; the clear implication being that, when it had performed the purpose of the loan— that is, had been used as collateral l)3r Smith — it should be returned in specie to Montgomery.

The statement of plaintiff, made as a witness, that the defendant, at a certain time, “examined the note thoroughly,” the issue being whether he knew that it was signed as by Percy R. Smith & Co., was but a “ short-hand ” rendering of the facts involved in reading the paper and ascertaining all of its contents. It was properly admitted.—Woodstock Iron Co. v. Roberts, 87 Ala. 436; Perry v. State, Ib. 30.

It- has become to be a familiar rule of law in this State, that a witness as to character may, on cross-examination, be interrogated as to what he has heard in the community touching the character of the party inquired about. This is to afford a test of the value of his evidence in chief — to show that his conclusion as to the reputation in issue, and winch rests upon the estimation of the community, is not supported by the expressions of that estimation, and thus to weaken its force. Such expressions can not be given in evidence by the party whose witness is being examined, and who testifies that he knows the character under inquiry. He must state what that character is, as upon his own knowledge, and is not allowed to substitute for his knowledge the means or sources of it. On these principles, the action of the City Court in refusing to* allow the witness Mudd to testify to the character of the' adverse criticism he had testified on cross-examination to-having heard on the character of Smith, and in excluding the evidence of Read, given in chief, that “ he had heard a good many people say they would not believe Smith on oath,” was unobjectionable. The ruling as to Mudd’s testimony, moreover, may be sustained on the further ground, that it involved no injury to appellant, in that he had already deposed to the character of the criticism which he had heard with respect to Smith’s character, to the effect that they were “ severe ” expressions condemnatory of Smith.

We find no error in this record, and the judgment of the. City Court is affirmed.