Sebastian May Co. v. Codd

26 A. 316, 77 Md. 293, 1893 Md. LEXIS 22

• Court: Court of Appeals of Maryland
• Decided: March 15, 1893
• Status: Published

Opinion

Eowler, J.,

delivered the opinion of the Court.

This controversy grows out of a transaction which took place in October, 1891, between the appellant company doing business in Ohio, and the appellee who resides in this State.

On the twenty-first of October the appellee, who was defendant below, wrote from Baltimore to the appellant the following letter: “If I would purchase a small stock of your lathes, say to the value of about $800 would you take a four months’ note in settlement. The note I propose to give you is given by the Theo. C. Knauff Company, manufacturers of church organs, 238 Dean St., Philadelphia; factory is at Newark, Delaware. It is endorsed by the following individuals. ” The names of the endorsers are then given, and, promising to enclose the note in a subsequent letter, the appellee requests an answer by telegraph. .Two days after the date of the foregoing letter the appellant telegraphed the'appellee: “We will accept your offer, send in your order.”

Accordingly on the next day, the appellee wrote the appellant enclosing the note above mentioned, and ordered a number of lathes — closing his letter with these words: “The balance over the amount you can remit to me as soon as the note is paid.” A few days after — on the 26th October, the appellant acknowledged receipt of the note and order for lathes, and informed the appellee the note had been placed to his credit.

Goods to the amount of $914.83 were subsequently shipped by the appellant to the appellee, and received by the latter in Baltimore. The note was protested for non-payment, and the appellant -brought an action of assumpsit against the appellee on the common counts to recover the value of the goods so sold and delivered.

There was a verdict for the plaintiff for $29.83 — the difference between the value of the goods and the face value of the note. .Judgment of nonpros, was entered, and the plaintiff appealed.

During the course of the trial below three exceptions were taken to the rulings of the Court, one upon the rulings on the prayers, and two in reference to the rulings on the testimony.

It was very earnestly contended on the part of the appellee, and the Court below so held, that the transaction or contract between the parties to this suit, the entire evidence of which, so far as now disclosed, is in writing, and is contained in the letters which passed between them, was an exchange or barter of the goods oí the appellant for the note of a third party passed by delivery merely, and without endorsement, and that therefore the appellant assumed all risk of non-payment of the note. On the contrary the contention of the appellant is that by the true construction of the contract, the transaction is a sale, and the note was taken not as absolute, but only as conditional payment.

What is the rule of law regulating the rights and liabilities of parties in the case of an exchange or barter of goods for the note of a third party we need not now consider, for we have concluded that the contract in this case is one of sale.

The negotiation was commenced by the appellee who in his letter of October 21st, said: “If I would purchase a small stock of your lathes * * * would you take a four months note in settlement ?” It seems to us that the plain import of this language indicates that it was the desire and intention of the appellee to buy the goods in contradistinction to giving something in exchange for them- — for otherwise why use the word purchase f If he intended to make an exchange he should have said so. But when we look at the concluding sentence of appellee’s letter of the 24th October, in which the note was transmitted, it appears to us there can he no doubt what was the appellee’s understanding at that time. He said, “the balance over the amount you can remit to me as soon as the note is paid.” It will be remembered that at that time it was not known to either party exactly how many or what kind of lathes would he ordered, or what the prices for the same would he. The appellee had limited his order to “about the value of $800,” and therefore when he sent the note for $945.00 and asked for the difference to he remitted to him when the note is paid, he could not have understood he was parting with the note in exchange for the goods. This certainly has no't the appearance of an exchange, hut on the contrary would indicate what we have already said, that the transaction we are considering was a sale.

Was the note given and received in full payment?

As the case now stands the answer to this question must he found in the same written evidence which establishes the contract, for there is no other proof on the subject before us. If nothing appeared or could be ascertained from the contract except that the note in question was received in payment for the goods, it might well he conclusively presumed that such was the intention of the parties to the contract. Tobey vs. Barber, 2 American Leading Cases, 299; Noel vs. Murray, 1 Duer, 385; 18 Am. and Eng. Ency. of Law, 182.

But here we have a different case presented. It appears that the appellant was to keep the note until maturity, then collect the proceeds thereof, and having paid itself for the goods, the balance was to he remitted to the appellee. This part of the transaction, it seems to us, is very significant, and would seem to be a conclusive indication that the note was not intended to he at the risk of the appellant. Eor, according to all authority, and reason as well, if the vendor takes the note as absolute payment, it is his property, and he may dispose of it as he would any other property owned by him. But here it appears that, so far from accepting the note absolutely, the agreement was that the appellant was to collect the proceeds, retain a portion thereof, and the balance was to be the property of the appellee.

But it was also urged that the note was offered and accepted “in settlement” for the goods purchased by the appellee, and that it was placed to his credit by the appellant. But we do not think that the use of the word “settlement,” nor the fact of the credit are together sufficient to overcome the force of the fact on which we have based the inference already drawn. It will be noticed that the note was not given or received m payment, but the appellee offers it in settlement, and the offer is accepted in general terms, without saying whether it is accepted in payment or in settlement. But assuming that the note was accepted as offered, that is, “in settlement,” the use of this term in lieu of “payment” maybe considered as another indication of the intention of the parties, especially in view of the arrangement we have already mentioned, that the appellant w'as to retain only a part, and remit the balance of the proceeds of the note to the appellee. Nor do we think that the fact, of crediting the amount of the note to the account of the aj)pellee can have any controlling effect under the circumstances of this case.

The case of Phelan vs. Crosby, 2 Gill, 470, was cited to show that when an unendorsed note of a third person is placed to the credit of the consignee of the goods sued for, and the balance receipted for as paid in cash, the note must be considered as having been taken in payment in the same sense that the cash was payment. There is no cash payment in the case before us, and of ' course there can he no argument based upon the combined effect of the cash payment and the credit of the note. The language quoted to support the view of the appellee is not that of the Court of Appeals, but will be found in the dissenting opinion of the late Judge Magruder, who thought the judgment in that case should be reversed; but the majority of the Court, while filing no opinion, affirmed the judgment, and therefore held in accordance with the ruling of the trial Court, in granting the defendant’s first prayer, that there must be evidence that the note was received in payment and without the right of recourse to the defendant. However, without regard to what was said in- Phelan and Crosby as to the effect of giving credit in that case, we do not think the fact of crediting the note here, whether considered alone, or in connection with the other evidence of the contract, is conclusive proof that the note was taken as absolute payment.

Of course it will not be contended that whenever a merchant credits his debtor’s account with the amount-of a note, that thereupon the debt is paid. Such a construction of a very common entry in book-keeping would be novel, and would often result in supplying debtors with an easy as well as “a new way to pay old debts.”

There being nothing, therefore, in the written evidence of the contract to prove that the note wuis to be taken and was taken as absolute payment, on whom does the burden rest to show that fact, if it be a fact? The transaction in this case was, as we have said, a sale, and not an exchange. The appellant sued in assumpsit on the common counts for goods sold and delivered, and having proved its case, it was admitted by the defendant that the goods had been delivered to him as charged— his defence being that the note in question for $945 had been accepted in full satisfaction. This note was produced by the appellant and put in evidence by the appellee. Under these circumstances, the appellee setting up as a defence this alleg’ed agreement as to the note, it would seem clear that the onus is upon him to prove it. But the only proof on this point, offered by the appellee was the contract itself or the written evidence thereof, which does not, as we have said, establish his contention on this point. And although there is some conflict of authority as to where the onus probandi rests in a case like this, (Tobey vs. Barber, 2 Am. Lead. Cases, 299; Noel vs. Murray, 1 Duer, 385,) yet in Maryland there is no doubt as to the rule. In the case of Susquehanna Fertilizer Company vs. White & Company, 66 Md., 457, in which the defendant set up the same defence here relied on, it was held that the burden was upon him. It follows, therefore, that the prayer of the appellee which' placed the burden upon the plaintiff should have been refused, and that of the appellant, so far as it related to this question, was correct, and should have been granted, for it placed the burden on the defendant.

As this case will have to be remanded by reason of the error already pointed out, it will be necessary for us to pass upon the questions presented by the other two exceptions — relating to the admissibility of testimony. It will be unnecessary to consider the first exception, because substantially the same evidence was offered and ■excluded under the second exception. There is a material difference, however, in the two offers, the first having been made during the cross-examination of the defendant, and properly excluded because the evidence included in the offer had no relation whatever to anything testified to by the witness-in-chief, while the second was an offer of testimony in rebuttal, and for the purpose of showing that the appellee had actual knowledge of the insolvency of the maker of the note at the time of the transfer thereof, and that he concealed the fact of such insolvency from the appellant. We think it very clear that if the testimony is admissible for any purpose, it was properly offered in rebuttal. The appellant fully proved his case below by proving the sale and delivery, and the defence was payment, the evidence of which was the promissory note in question, which note, it was claimed, by virtue of the contract, had been received by the appellant in full satisfaction for the-goods. In order to rebut this defence, the appellant-offered the testimony referred to in order to show that, even assuming he had agreed to accept the note in payment, he was induced to do so by the fraud of theappellee. It must he conceded that the testimony offered tends to prove the fact it was offered to prove, and the question then is whether the knowledge of theappellee and its concealment from the appellant constitute a fraud, under all the circumstances of this case.

While the appellee admits that he would be guilty of the charge of fraud if he had made any false representations as to the solvency of the maker of the note, yet he contends, in effect, that having remained silent, and having thereby concealed the insolvency, nothing wrong morally, certainly no fraud that will be regarded in a Court of law, can be imputed to him. But we do not-think such a position is consistent either with good morals or good law. No doubt some authority can be-found to sustain the view of the appellee as to the legal proposition, (Bartle, et al. vs. Saunders, 2 Grant’s Cases, 199; Smith vs. Smith, Murphy & Co., 21 Pa. St. Rep., 367); but we cannot give them our approval.

In 2 Am. Lead. Cases, (Tobey vs. Barber, 299,) the annotators say: “It will make no difference in point of principle that the maker of the note was insolvent at the time, if there is no fraud or undue concealment on the part of the purchaser.” And this is the general principle, stated in many different ways, which will he found in all the authorities. It is recognized in Maryland in. the case before cited, Phelan vs. Crosby.

In support of the rule as laid down in 2 Am. Lead. Cases, the leading case, Bicknall & Skinner vs. Waterman, 5 R. I., 43, and Byles on Bills are cited. In the ■case just mentioned it is said that "the well-known -common law principle applicable alike to sales and exchanges of personal things, is that fraud or warranty is necessary to render the vendor or exchanger liable in •any form, for a defect in the quality of the thing sold •or exchanged. Applying this principle to the sale or exchange of a note of a third person, transferred by •endorsement without recourse, or by delivery merely, the vendee or person taking it * * takes the risk of the past or future insolvency of the maker * * *; unless, indeed, in case of past insolvency the vendor or exchanger is guilty of the fraud of passing it off with knowledge of that fact.” And we assume that such •conduct would be none the less a fraud, because the note happened to be passed in payment of merchandise then purchased.

In Byles on Bills, page 257, it is said: "But in all cuses if notes or bills are transferred as valid when the transferer knows they are good for nothing, the suppression -of the truth is a fraud, and he is liable.”

"If,” says Justice Bayley, in the case of Camidge vs. Allenby, 6 Barn. & Cress., 382, "he could show fraud, or knowledge of the maker’s insolvency in the payer, then it would be wholly immaterial whether the notes were taken at.the time of sale or afterwards.”

And in Popley vs. Ashly, 6 Mod., 147, Lord Holt uses this language: "If a man give a note upon a third person in payment, and the other takes it absolutely as payment, yet if the party giving it knew the third person to be breaking or in a failing condition, and the receiver ■of the note uses all reasonable diligence to get payment, but cannot, this is a fraud, and therefore no payment; and here was no laches in the plaintiff; for the party failed before the money was payable.” And this seems to be precisely the state of facts offered to be proved in this case.

The case of Brown vs. Montgomery, 20 N. Y., 287, was the case of the sale of commercial paper; but the principle there involved applies also to the case before us. In that case the Court says: “The case is as though, after hearing of the failure of the maker of the notes, they took the paper * * * * into the street, and sold it to parties who had not heard of that event.” “Such an act,” says the Court, “could not be justified at law any more than in the forum of conscience.”

And the same principle is recognized in Fisher vs. Rieman, et al., 12 Md., 497, where it was held that where a promissory note is tona fide sold by a public bill broker by delivery merely * * * without any express warranty or representation and not for an existing debt or one created at the time, there was no implied warranty even of the genuineness of the note. But the Court is careful in quoting authorities to sustain this position as applicable even to that case, that it must be assumed that the assignor was not guilty of any fraud in the transaction, and in connection with this necessary assumption it is stated as a fact that the assignor was ignorant of the defect in the note. Of course, if he had known of the forgery of the note, the conclusion in Fisher and Rieman, et al., and Brown and Montgomery would have been identical, — that the assignor was guilty of fraud. '

We refer to these authorities to show, that the facts offered to be proved in this case have been generally held to constitute fraud, whether the transaction be a sale or exchange of the note of a third person without recourse, or the transfer of the note itself in payment of a debt. But, independent of authority, we think there is no difficulty in reaching the same conelusion in this case, which, as we have said, is the sale of goods for the note of a third party.

(Decided 15th March, 1893.)

Where both parties are ignorant of the insolvency, other and different questions arise, with which we are not now concerned.

Our conclusion, therefore, is that the prayer offered by the plaintiff should have been granted, and the testimony offered by him should have been admitted.

Judgment reversed, and cause remanded.