Fowler v. Allen

The opinion of the court was delivered by Mr. Justice McIver. The action in this case was upon two negotiable notes, dated 30th of December, 1884, and payable 1st of December, 1885, signed by one Eber C. Allen, as principal, and defendant, as surety, and made payable to the plaintiffs. It seems that the plaintiffs had recovered two judgments before a trial justice against said Eber C. Allen, and also held an open account against him. One of the notes in suit was given for the amount of the two judgments, and contained an endorsement thereon to that effect, that when the note was paid, the judgments were to be cancelled. The other note was for the amount [235] of the store account. The defence was, that defendant signed the notes as surety upon the condition that they were not to be delivered to the payees until the two judgments were marked satisfied. Testimony was introduced, tending to show that the plaintiffs being about to press the two judgments, it was agreed that if Eber C. Allen would secure the amount thereof, as well as the amount of the account, by his own note, with his mother, the defendant, as his surety, indulgence would be extended to him for the time specified in the notes. Accordingly Eber C. Allen signed, the two notes and took them off to procure his mother’s signature, and a few days thereafter delivered them to the plaintiffs properly signed by her. There was also evidence tending to show that defendant signed the notes upon the condition that they were not to be delivered to the plaintiffs until the two judgments above mentioned were cancelled. Whether this condition was communicated to the plaintiffs when the notes were delivered was the subject of some conflict of testimony — Eber C. Allen testifying that it was, while the plaintiffs and their attorney, Mr. McOravy, who conducted the negotiations on behalf of the plaintiffs, testified to the contrary. The jury having found a verdict for the plaintiffs, and judgment having been entered thereon, defendant appealed upon the several grounds set out in the record, which, however, make substantially but two questions, viz.: 1st. Whether the Circuit Judge erred in charging upon the facts. 2nd. Whether there was error in instructing the jury that even if the defendant did sign the notes upon the condition stated, which it is conceded was not complied with, she would nevertheless be liable thereon, unless the plaintiffs had notice that she signed upon such conditions. As to the first question, we deem it only necessary to say that a careful examination of the judge’s charge, which is set out in the “Case,” fails to disclose any violation of the constitution in charging upon the facts. On the contrary, it seems to us that every material question of fact was fairly left to the jury without any expression or even intimation of opinion on the part of the Circuit Judge. As to the second question, while it is not to be denied that there is some conflict in the eases elsewhere, we think the decided [236] weight of authority, as well as argument, is in favor of the proposition that where one signs a negotiable note, perfect on its face, as surety for another, upon the condition known only to the principal, that it is not to be delivered to the payee until something else is done, the surety will be liable, even if such condition be not complied with, unless notice is brought home to the payee of such condition. This proposition does not rest alone upon the peculiar character of negotiable paper, but upon the well settled principle, that where one of two innocent persons must suffer, the loss should fall upon upon him who put it in the power of a third person to cause such loss ; as well as upon the principle that where an agent is clothed with apparent authority to do an act, he may bind his principal within the limits of that authority, whatever may have been his private instructions. Here the principal debtor, after signing the notes, takes them to the defendant for the purpose of procuring her signature as his surety, in accordance with the agreement made by him with the plaintiffs, and when he delivers them properly signed, surely the payees cannot be affected by any private instructions which the surety may have given to her principal, unless the same were communicated to the payees. The surety, by signing the notes, complete in form, and placing them in the hands of her principal to be delivered to the payees even though upon a condition, has placed it in the power of her principal to deceive the payees, and if loss ensued, it must fall upon the one who contributed to that loss, rather than upon th.e innocent payees, who were left in ignorance of the conditions upon which the notes were signed. The principal debtor was the agent of the surety and not of the creditor, and if he has done an act for the doing of which he was clothed with apparent authority, even though it may have been done in violation of his private instructions, the person who invested him with such apparent authority must take the consequences. Any other view would, it seems to us, greatly impair, if it did not absolutely destroy, that confidence so necessary to the business interests of the community in negotiable paper ; for it would render it necessary, before a negotiable note could be discounted by a bank or by a- private individual, that inquiry should be made of the endorser or surety as [237] to whether they had signed their names upon conditions ; and this surely could not be tolerated. That these views are well supported by authority, may be seen by reference to the case of Jordan v. Jordan (10 Lea, 124; s. c. 43 Am. Rep. 294), where the subject is fully discussed and the authorities cited, also Marks v. National Bank (79 Ala., 550 ; s. c. 58 Am. Rep., 620), as well as the eases cited in 6 Am. & Eng. Encycl. L., 860, note 2. It is urged, however, that the notes in this case, though negotiable in form, being still in the hands of the original payees, are not entitled to the protection which paper of that class would receive in the hands of a bona fide holder for value, to whom they had been transferred before maturity. But we do not think that this can affect the question.. Of course, if these notes had been transferred before maturity to an innocent holder for value, no such question could arise, and therefore the question in the cases we have cited arose in cases where the original payees were still the holders. The plaintiffs here agreed to extend indulgence for a stipulated time if the debts were secured by the notes in question, and that was a valuable consideration outside of the original debt, and the indulgence was extended for the time stipulated — in fact, for a much longer time — upon the faith of defendant’s suretyship ; and now to deprive them of the consideration upon which such indulgence was extended, on the ground that the principal debtor has violated his private instructions from his surety, of which the plaintiffs had no notice, would, it seems to us, operate as a fraud upon the plaintiffs. Some of the eases, notably Dair v. United States (16 Wall., 1), followed by Butler v. United States (21 Id., 272), have extended the principle above laid down to unnegotiable as well as negotiable instruments. While there is much force in the reasoning employed in those cases, we do not deem it necessary at this time to consider that question. The cases of Gourdin v. Read (8 Rich., 230), and Mills v. Williams (16 S. C., 593), relied on by appellant, we do not think in point, not simply because in those cases the instruments involved were unnegotiable, but because in neither case were they complete in form. Indeed, in the latter case the instrument on its face showed-that the [238] instrument was intended to be delivered to a person other than the plaintiff, 'and for a purpose different from that for which it was used ; and in the former case the bond being in blank, it was incumbent on the plaintiff to inquire into the authority of the surety to fill the blanks. The practical result of these two cases is simply this — that where the instrument in question is in such form as would naturally excite inquiry, then the person who takes it must be deemed to have notice of such facts as such inquiry, properly prosecuted, would disc’ose. In this Case, however, it does, not appear that there was anything in the form of the notes calculated to excite inquiry, and therefore we think there was no error on the part of the Circuit Judge in instructing the jury that unless they found that the plaintiffs had notice of the private instructions which the defendant may have given to her agent, the principal debtor, as to the condition upon which the notes were to be delivered, the plaintiffs could not be affected thereby. The judgment of this court is, that the judgment of the Circuit Court be affirmed.