Herman's Exor. v. Gregory

Opinion op the Court by Judge Barker Affirming. The appellees (plaintiffs below) instituted this action in the Jefferson circuit court to recover judgment on a note against Peter Bitzer and Magdalena Hermann.. Magdalena Hermann filed an answer pleading non est factum. Bitzer filed a separate answer pleading his discharge in bankruptcy as a bar to the debt sued for. Issue was joined on the plea of Magdalena Hermann, and the case was heard by the trial court on the law and the facts; a jury being-waived by the parties. The court filed a written statement of the facts ascertained by him from the evidence and his-conclusion of law thereupon. These are as follows: “The plaintiffs Dudley Gregory and W. T. Pyne and the defendant Peter Bitzer bought a brickyard and executed their joint notes for the purchase money. These notes were held by the Louisville National Banking Company, and there was another note of Bitzer’s for $1,200, but upon which Gregory and Pyne were also bound, held by the First Rational Bank of Louisville. These notes had been renewed from time to time, and when the banks finally insisted upon payment Bitzer was not able to pay his part, and suits were brought and judgment rendered upon most of them. Bitzer was in business and was anxious — 821 — for further time in which to pay his part of these debts. He asked Gregory and Pyne to pay the debts and promised that if - they would do so he would secure them for the payment of his proportion by, giving them a note payable in six months with his mother-in-law, Miagdalena Hermann, as surety. They agreed to this, after ascertaining that Mrs. Hermann was solvent. Bitzer’s share of the indebtedness was ascertained to be $5,009.71. On the 7th day of December, 1905, the plaintiffs and Bitzer met at the office of Gibson, Marshall & Gibson by agreement, and Bitzer produced a skeleton note with the name of Magdalena Hermann signed at the foot. Barrett Gibson, acting for the plaintiffs, filled in the note, and Bitzer signed it above the name of Mrs. Hermann, and Bitzer delivered the note so signed and filled in to the plaintiffs. The note then read as follows: ‘$5,009.71. Louisville, Ky., December 7, 1905. Six months after date we promise t.o pay to the order of Dudley Gregory and W. T. Pyne, five thousand and nine dollars and seventy-one cents with interest from date. Without defalcation, value received, negotiable and payable at the First National Bank of Louisville, Ky. Peter Bitzer. Magdalena Hermann.’ The plaintiffs endeavored to discount this note, but were not able to do so and they are now the holders and owners of it; They paid off the several judgments and debts, including Bitzer’s part thereof, as they had agreed to do. “Mrs. Hermann alleges in her answer that in December, 1905, prior to the 7th day thereof, Bitzer brought to her a blank note and asked her to sign it as his surety, saying' he wanted to use it for the purpose of raising or borrowing money, that with the distinct understanding that the note was to be so — 822 — used she signed it as surety, and that when the paper was presented to her it contained only this printed matter: .......... Louisville, Ky., ........... 190. .. ...........after date ......... promise to pay to the order of........ dollars without defalcation, value received, negotiable and payable at. ’ - She alleges that the note was diverted from the purpose for which she signed it, and that instead of using it to borrow money Bitzer used it to pay old debts then due for all of which the plaintiffs were bound with him. She pleads no consideration. Bitzer in his testimony says he did tell Mrs. Hermann that he intended to raise money on the note, and that she signed it with that understanding and for that purpose, but he admits that he did not tell plaintiffs that she signed for that purpose or upon any condition whatever. The plaintiffs did not know that she signed as surety for any other purpose than to enable Bitzer to carry out the arrangement he had made with them touching his pro rata of the debts. At the time of the trial Mrs. Hermann was too ill to testify in person or by deposition. Since the execution of the note sued on Bitzer has been adjudged a bankrupt and has secured his ■discharge. “I conclude from these facts that as Bitzer produced to the plaintiffs a blank note with the signature of the person he promised to give as surety, and •as he did not know the amount for which the note was to be given when he obtained Mrs. Hermann’s signature, and for that reason could not complete it before she signed, and as the plaintiffs did not know until after they had performed their part of their agreement with Bitzer by paying the debts, nor until the answer of Mrs. Hermann was filed, that there was any restriction upon her suretyship, if such was — 823 — the fact, and furthermore that as Bitzer was present and produced the note for the purpose of having it filled in, Mrs. Hermann is hound by her signature. Sebree Deposit Bank v. Clark, 105 Ky. 214, 48 S. W. 1089, 20 Ky. Law Rep. 1155. As to the- plea of no consideration, Bitzer obtained six months’ further time on. his pro rata of the debts by reason of the execution of the note sued on, and that fact is a sufficient consideration to support, the promise of the surety! Steger v. Jackson, 102 S. W. 320, 31 Ky. Law Rep. 434. Por these reasons plaintiffs are entitled to judgment against the surety, Mrs. Hermann, as prayed, and it is so ordered.” ■ After the judgment of the trial court was entered Magdalena Hermann died, whereupon, by consent, the action was revived in the name of her executor, who filed grounds for a new trial, which, being overruled by the court, this appeal is prosecuted here. ■ Appellant admits in his brief that his testator would have been liable on the note as the law stood prior to the adoption of the act of the General Assembly of the Commonwealth of Kentucky known as. the “Negotiable Instruments Law” (Acts 1904, p. 213, c. 102), but insists, as the transaction involved, herein arose subsequent to the adoption of the act in question, that his testator’s liability is to be measured, by the provisions of the new law, and that when so-measured she is not responsible under the facts as found by the court. Appellant also concedes that,, under the common-law rule prevailing in this State prior to the adoption of the negotiable instruments, act, if a party signed his name to a blank note and delivered it to another for the purpose of being used 'to raise money, the first is responsible for whatever-sum the second inserts in the body of the note. Bank — 824 — of Limestone v. Penick, 5 T. B. Mon. 25; Commonwealth Bank v. Curry, 2 Dana, 142; Hall v. Commonwealth Bank, 5 Dana, 258, 30 Am. Dec. 685; Smith v. Moberly, 10 B. Mon. 266, 52 Am. Dec. 543; Jones v. Shelbyville Fire, Life & Marine Ins. Co., 1 Metc. 58; Smith v. Lockridge, 8 Bush, 423; Woolfolk v. Bank of America, 10 Bush, 504; Sowder v. Citizens’ National Bank, 12 Ky. Law Rep. 356; Stanley v. Davis, 107 S. W. 773, 32 Ky. Law Rep. 1135. But he earnestly insists that by section 14 of the Negotiable Instruments Law (Acts 1904, p. 217, c. 102) his testator, under the circumstances, is not liable on the note because it changes the former rule. Section 14 is as follows: “Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into á negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in- accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiable to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time.” The particular part of the above section relied on is as follows: “In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its com — 825 — pletion, it must be filled' up strictly in accordance with thie authority given and within a reasonable time.” Now, the contention of the appellant is that Bitzer carried the skeleton note with his mother-in-law’s name appended thereto to the appellees, and it was there filled up in their presence, and therefore they were charged with notice of any secret understanding between him and his mother-in-law as to the use he was to make of the note to which- she had affixed her name. It is said that the evidence shows that, when Bitzer applied to his mother-in-law to sign the note as his surety, he told her that he wished to raise money for his business, and that, this being true, the use of the note to pay off an old indebtedness was a diversion of it from the purposes for which the surety had signed' the paper, and therefore the appellees, who were the original holders with notice and not for value, have no claim against the surety. Without wholly giving our consent to the contention of appellant, let us see whether his testator’s estate can escape liability under the rule as laid down by himself. In the first place, were the appellees holders for value? That the note was delivered to them is not questioned. Section 25 of the Negotiable Instruments Law is as follows: “Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes a value, which is deemed such, whether the instrument is payable on demand or at a future time.” It is admitted that the appellees paid for Bitzer, upon receiving the note, $5,000, which he owed the banks, and therefore, under the very language of the statute, there was a valuable consideration for the note. Section 26 of the act is as follows: “Where value has at any time been given for the instrument, the — 826 — holder is deemed a holder for value in respect to all parties who became such prior to that time.” The appellees, after the signature by appellant’s testator, as said before, paid off $5,000 of his debt. They are therefore, under the letter of the law, holders for value. / Now, what was the' diversion which the appellant claims rendered the note invalid in the hands of the appellees! The facts are set up in Mrs. Hermann’s answer, and are as follows: ‘ ‘ She says that said paper was signed by no one at the time the same was presented to her by her codefendant, Peter Bitzer, and she says that her codefendant, Peter Bitzer, stated and represented to her that he desired to borrow or raise some money and requested of her that she should sign her name to said note as his surety,' and this defendant says that, as requested by her co-defendant, and his surety, and with the distinct agreement and understanding that the same was to be used by her codefendant, Peter Bitzer, for .the purpose of borrowing money, she signed her name at the bottom of said note, and which note was blank as to the matters and in the particulars as hereinbefore set out at the time she signed the same, and there was no other signature signed or appended to said note. She says * * * she handed the same (the note) to her codefendant, Peter Bitzer, who received it from her and afterwards and without her knowledge or consent had the same filled out as it now appears, and signed the same and delivered the same to the plaintiffs herein in settlement of or in consideration of a debt or obligation that was on and prior to the time that this defendant signed said note due and owing by her codefendant to the plaintiffs herein, and she says that said note was not used by her code — 827 — fendant to borrow or raise money, nor was any money loaned or advanced by tbe plaintiffs herein or either of them on said note, .and she says she received no part of the consideration for said note and is not in any way liable therefor.” Now, it seems to us that what took place, as shown by the uncontradicted testimony, was exactly what Bitzer told his mother-in-law he was going to do with the note. He told her he wanted to borrow some money, and she signed the note to enable him to do this. He borrowed the money sued for from the appellees at the time the note was delivered to them. It'is true, they did not hand him the bills in his own hands with which to go and pay his debts to the banks; but they did what was equal to that — they went to the banks and paid his indebtedness themselves. Now, while the joint indebtedness of appellees and Bitzer was owed by each of them in whole to the banks, as between themselves each was respónsible only for one-third of it. Bitzer was an active business man, and was being sued by the banks for debts amounting in the aggregate to $15,000. If he could not meet this indebtedness, he was a bankrupt, and his business would stop. He was exceedingly anxious to go forward with his business obligations, with the hope of being able to weather the financial storm with which he was threatened and to pay all of his indebtedness. The only chance he had to do this was to borrow from the appellees the money necessary to pay his part of the indebtedness with which they were all being pressed in the court. The appellees loaned him the necessary money upon his agreement to give them a note, upon which his mother-in-law was surety, for the amount advanced. It seems to us on the statement of the answer and — 828 — on the facts as proved, giving section 14 of the' law the construction contended for by appellant, that the note was filled out and used for the very purpose for which Magdalena Hermann had signed it as surety, and that there was no diversion whatever from that purpose. It is true, Peter Bitzer, in his testimony, changes the verbiage of w;hat took place between him and his mother-in-law at the time she signed the note from that set up by her in her answer. He states that he told her he wanted her to sign the note in order that he could raise some money at the First National Bank for his business; but we apprehend, if there be a substantial difference between the statement in his testimony and that of her pleadings, that the pleadings will prevail. For these reasons, we are of opinion that the judgment of the trial court should be affirmed, and it is so ordered.