Watson v. Chesire

18 Iowa 202

• Court: Supreme Court of Iowa
• Decided: April 3, 1865
• Status: Published

Opinion

Dillon, J.

1. Promissory note: action by indorsee: privity: fraud. I. The first error assigned by the plaintiff is, that “ the court erred in sustaining the defendants’ demurrer t0 tb© first count of the petition.” This makes it essential to set out the substance of this count with accuracy.

It commences by alleging that John and Wesley Chesire held and owned the Moore note and mortgage, describing them; that, January 20,1860, the said Chesires, for a good and valuable consideration (but not alleging what), sold and assigned said note to their co-defendant, Griffith, whereby they falsely warranted the said note to be genuine, unpaid and unsatisfied in any way; that afterwards Griffith, assignee as aforesaid, sold and assigned said note to the plaintiff for a good and valuable consideration, whereby he, Griffith, falsely warranted, &c., as above; that plaintiff relied upon said warranties and paid Griffith for said note; that the said note, at the time the same was assigned by Chesires to’ Griffith, and by Griffith to the plaintiff, “ had been fully paid, extinguished, and nothing was due. thereon from the said Moore to the defendants or either of them; ” whereby “ the defendants fraudulently deceived the plaintiff, to his damage” in the amount of said note. Copies of these assignments are set forth, showing that they were made “ without recourse." The first was an assignment in full by J. and W. Chesire to “ John M. Griffith or order, without recourse.” The next was in blank, as follows: “Without recourse. John M. Griffith.”

To this the court sustained a demurrer, both in behalf of the Chesires and of Griffith.

We will consider the case, with respect to the Chesires, separately and first.

Upon consideration, we think the demurrer was rightly sustained.

It is only by treating this count as founded upon the indorsement, that the plaintiff's action against the Chesires has any color or plausibility.

There is, except through the indorsement, no privity between the plaintiff and the Chesires. The latter sold the note to Griffith, and not to the plaintiff. The plaintiff purchased of Griffith, not of the Chesires. No transaction is alleged between the plaintiff and the Chesires. Hence, the plaintiff’s right to sue the latter, if it exists at all, must exist by virtue of the contract of indorsement.

Now if this count be treated as one ex contractu upon the indorsement, it is not maintainable, because the indorsement, on its face, negatives and rebuts any personal liability on the part of the Chesires. This is the object and effect of an indorsement “ without recourse.”

Such an indorsement transfers title, but stipulates for exemption from the ordinary responsibility of an indorser. It will not, however, protect the assignor from liability over from fraud and misrepresentation in the assignment of the note. In point, see Welch v. Lindo, 7 Cranch, 159; 2 Curtis’ ed., 496; Epler v. Funk, 8 Penn. (8 Barr), 468, 469; Prettyman v. Short, 5 Har. (Del.), 360; Richardson v. Lincoln, 5 Metc., 201; Rice v. Stearns, 3 Mass., 225; Waite v. Foster, 33 Maine, 424; Goupy v. Harden, 7 Taunt., 159, per Dallas, J.; Chitty on Bills, 218, 225, 235; Story on Notes, § 146; Lyons v. Miller, 6 Grat. (Va.), 427.

Suppose it to be true that, in the transfer of the Moore note by Chesires to Griffith, the latter was deceived and defrauded. This would give Griffith his right of action-against the former. Suppose it to be true, also, that the plaintiff was deceived and defrauded by Griffith.' This would give him a right of action against the latter. He could not sue the Chesires for the fraud they practiced upom Griffith.

So that the reasoning drives us back to the point at which we started, viz., the plaintiff cannot sue Chesires ex contractu, having had no transaction with them except upon the indorsement. If the first count is treated as being founded upon that, it fails, because the indorsement itself not only does not create, but expressly avoids, a cause of action. ( Vide authorities above cited,.)

2. - indorsement without recourse. The case presents the question, What, in the absence of special contract, are the obligations of the trans-ferrer of negotiable paper, who indorses it with-0MÍ recourse f jfc seems to us that the obligations of a transferrer of such paper, by indorsement without recourse, are substantially the same as those of a transferrer of 'such paper when payable to bearer by delivery merely.'

It is a clear and well-settled doctrine, that such a transfer does not make the party liable as indorser. . When he indorses paper without recourse, or transfers it (if payable to bearer or if indorsed in blank) by delivering merely, without putting his name upon it, he ceases to be a party to the paper. He cannot be made liable as a party to or upon the instrument.

There may be a liability in such cases, but it arises upon the transaction, upon the facts of the case, to be asserted in an action for the original consideration or its value, or for fraud practiced, and not upon the indorsement or upon the paper transferred. Speaking of the same general subject, in the well-known case of Jones v. Ryde, 1 Marsh., 157, 5 Taunt., 489, Gibbs, Ch. J., says: The ground of resisting this claim is, that it was a negotiable security without indorsement ; and that when the holder of a negotiable security passes it away, without indorsing it, he means not to be responsible upon it.. This doctrine was fully discussed in the case of Fenn v. Harrison, 3 T. R., 757; and the proposition is true, but only to a certain extent. “ If a man pass an instrument of this kind without indorsing it, he ccmnot be sued as indorser, but he is not released from the responsibility which he incurs by passing an instrument which appears to be of greater value than it really is.” And this case-is recognized as authority in the text-books, and in England in' subsequent cases (Wilkinson v. Johnson, 3 B. & C., 428), and in this country. (Cabot Bank v. Morton, 4 Gray, 156.)

The accepted doctrine on this subject may be thus stated: Where a note is transferred without recourse, equally as when it is transferred by delivery only, the transferrer is exempted from all the ordinary responsibilities which attach to such a transfer. (See authorities first in this opinion-cited.)

But he does not, unless such is the agreement, understanding or contract of the parties, stand free from all obligations. Thus, unless otherwise agreed, he warrants' that the paper so transferred is genuine, and not forged or-fictitious. (Jones v. Ryde, supra; Fuller v. Smith, Ryan & Mood., 49; 1 C. & P., 197; Chitty on Bills, 245; Story on Notes, § 118; Aldrich v. Jackson, 1 R. I., 218; 2 Parsons on Notes and Bills, ch. 2, § 2, p. 37, and authorities; Lyons v. Miller, 6 Gratt., 247; Morrison v. Currie, 4 Duer, 79; Cabot Bank v. Morton, supra; Rieman v. Fisher, 4 Am. Law Reg., 433.) He warrants by implication, nothing to the contrary being shown, that it is of the kind and description that it purports on its face to be. (Allen v. Pegram, 16 Iowa, 163, in relation to illegal bank stock; Gompertz v. Bartlett, 2 Ellis & Bl., 819; 24 Eng. L. & Eq., 156, where the vendor of a bill was held liable, though he did not put his name upon it; Young v. Cole, 3 Bing. N. C., 724, as to liability of vendor on the sale of invalid Guatemala bonds; and see, further, the authorities above referred to, and Kempson v. Sanders, 11 Bing., 5; Redfield on Railways, 50, note; Hilliard on Sales, p. 156, § 37; Eaton v. Mellus, 7 Gray, 566, which decides that there is an implied warranty that the assignor has done nothing, and will do nothing, to prevent the assignee from collecting the claim assigned.)

So there is an implied warranty, unless it is otherwise agreed, that the parties to the instrument are sui juris, and capable of contracting. (Theall v. Newell, 19 Verm., 202; Lobdell v. Baker, 1 Metc., 193; 3 Id., 469; Jones v. Crosthwaite, 17 Iowa, 893, and cases; 2 Pars, on Notes and Bills, 39; but no implied warranty of their solvency. Chitty on Bills, 245; 2 Parsons on Notes and Bills, 41; Epler v. Funk, 8 Penn., 468; Burgess v. Chapin, 5 R. I., 225.) So there is an implied warranty that the instrument transferred has not been paid. And, generally, it is laid down by Mr. Parsons (2 Notes and Bills, ch. 2, p. 41), who follows and closely copies Mr. Chitty (Chitty on Bills, 247), that, “in all cases where the assignor” (we may add, whether by delivery or by indorsement, made “ without recourse”), “of a bill or note knows it to be of no value, and the assignee receives it in good faith (not aware of the fact), paying a valuable consideration of any kind, the assignor may be compelled to repay or return the consideration thus received.” And see Burgess v. Chapin, 5 R. I., 225, which holds an assignor without indorsement to be liable upon tbe ground of fraud — tbe rule of caveat emptor otherwise applying.

Forms of actioBut, in all such cases, tbe action is not upon the paper transferred, but against the vendor or transferrer upon and for the original consideration or its value, or for , , - tvi . ,. 7 the n. fraud practiced; and tue latter is “ liable to the vendee,” to use the language of Ames, Ch. J., in Aldrich v. Jackson, 5 R. I., 218, “for what he has received from him on the ground of failure of consideration.” (Without quoting, see 2 Parsons on Notes and Bills, 87, and note; Kephart v. Batcher, 17 Iowa, 240; Chitty on Bills, 246, and authorities cited; Story on Notes, § 117 (5th ed.), and cases cited in notes 4 and 5; Welch v. Lindo, 7 Craneh, 159; Prettyman v. Short, 5 Harring. [Del.], 860; Eaton v. Mellas, 7 Gray, 566, holding that, in the absence of fraud in the assignor, the assignee can only recover of him the amount of the consideration paid for the assignment, with interest.)

4. - Effect of indorsement. If the foregoing views are correct, it follows that the plaintiff" holding simply the indorsement of the Moore note “ without recourse,” could not sue the Chesires on the indorsement. His remedy, if he could not make out a case upon the facts, would be a special one against Griffith, of whom he purchased the note, and to whom he made payment therefor. So Griffith’s remedy would be against the Chesires. Under our statute, it may be that Griffith might specially assign his cause of action against Chesires to the plaintiff; but the mere indorsement of the note without recourse would not have this effect. Such an indorsement operates simply to transfer the title to the note — not an independent cause of action. The demurrer as to the first count of the petition was, beyond doubt, properly sustained as to the Chesires.

And if we are right in considering it as being intended as one upon the indorsement, and not as one intended and adapted to recover the consideration paid for the note, it was also properly sustained as to Griffith.

5. - Fraudulent suppression of facts. II. The second count in the petition charged the defendants, jointly, with falsely and fraudulently representing to plaintiff, with a view to induce him to purchase the said note and take an assignment without recourse, that it was all right and wholly unpaid, &c.; whereas the contrary was true, &c., &c.

This clearly set out a cause of action — a case of fraud. Issue was taken on this count, and the cause was tried thereon by a jury, who found for the defendants.

The plaintiff complains of the charge of the court, but, as we think, without foundation. The court charged, in substance, that, if the fraud alleged was proved, the plaintiff should recover against all the defendants, or those who committed the fraud. The charge defined the elements or’ ingredients necessary to constitute fraud. No complaint on this head is made. The court charged that if the defendants, or either of them, fraudulently suppressed or withheld facts material to be known, this would be, in law, a fraud, and actionable, if any injury to the-plaintiff resulted therefrom.

From a careful examination of the charge and instructions of the court, in connection with the testimony, we think the cause was most fairly and intelligently put to the jury.

If the directions to the jury are exceptionable at all, we think the defendants, rather than the plaintiff, have the better right to complain. We see no reason to interfere, on the ground that the verdict was against the weight of evidence.

6. Evidence: intention. III. On the trial, the defendant, Wesley Chesire, was called as a witness for the defendants. He testified that the plaintiff, near the time he obtained the note of Griffith, told him (the witness) that he was about to trade for it. “I told Watson,” says the witness, “that be bad better not trade for it; that Griffith bad been out to Moore’s, and Moore said be would not pay the' note; that we bad misrepresented a piece of timber land to bim. There was something said about tbe defense Moore bad (or claimed to) set up. I told bim that-we did not misrepresent it.” Tbe witness was then asked this question: “State what you know about tbe truth of the representations you made to Watson in regard to Moore having a defense-to the note, and what you then believed in relation to it?-” Objected to by plaintiff; objection overruled. Witness answered: “I did not think be bad any just defense.” To a similar question be also answered: “I did not believe that Moore had a defense to the note.”

The error assigned is, that it is not permissible to allow a witness to testify as to bis belief, especially in reference to a question upon which, in a case of fraud, the whole cause usually turns. .

We admit that it is going a great way to allow this to be done, especially where tbe witness is a party to the suit, testifying at bis own instance and in his own behalf. Yet tbe authorities do bold, that when tbe knowledge, belief or intention of the witness is a material fact, it may be testified to tbe jury, the same as any other fact; giving to tbe opposite party a liberal scope in the cross-examination. Thatcher et ux. v. Phinney, 7 Allen (Mass.), 146, 149; Lombard v. Oliver, Id., 155; Fisk v. Chester, 8 Gray, 506. So in Seymour v. Wilson, 14 N. Y. (4 Kern.), 567, it was held, that, on an issue of fact as to whether a transfer of property was fraudulent, and in a case where the facts did not necessarily prove fraud, but only tended to that conclusion, it was competent, where tbe transferrer is a witness, to inquire of bim whether, in making tbe transfer, be intended to delay or defraud bis creditors. • “Such evidence,.” says tbe court, “ should be received for what it may be considered worth.”

7. - instruction. In such case the court should, if asked, and, perhaps, on its own motion, state to the jury, in substance, that, in judging of a man’s belief, knowledge or intention, they consider all the evidence and all of the circumstances ; that his statement in that respect was not conclusive upon them; but they should arrive at their own conclusion upon the whole case, including, of course, the statement of the witness, and. giving it such weight as, under all of the circumstances, they believe it fairly entitled to.

It follows that the court did not err in permitting the questions to be answered.

Affirmed.

Cole, J., having been consulted in the cause in the .District Court, took no part in its determination by this court.