Carter v. Moulton

The opinion of the court was delivered by Allen, J.: This action was brought by A. L. Moulton on a promissory note, which reads as follows: “$600. Marion, Kas., December 7, 1887. “Nine months after date, we promise to pay to the order of A. L. Moulton, at the Cottonwood Valley Bank, Mariou, Kas., six hundred dollars, with interest at 12 per cent, per annum until paid. Value received. J. M. Wishart. R. E. Knapp. R. C. Cable. C. E. Foote. M. A. Carter.” The defendant, M. A. Carter, filed her separate answer, which reads as follows (omitting title): “Now comes the defendant, M. A. Carter, and for her separate answer herein says, that the consideration of the note sued on by the plaintiff herein was for money borrowed by J. M. Wishart of and from the plaintiff, no part of which was ever had or received by this defendant; that this defendant [13] signed said note as surety only for said Wishart, all of which was at the time well known and understood by the plaintiff; that this defendant signed her name to said note only as an escrow, on the express condition that said Wishart, the principal in said note, would hold the same as such escrow, and not deliver it to the plaintiff until he, the said Wishart, should execute in favor of said plaintiff, to secure the payment of said note and interest, a mortgage on his homestead in the city of Marion, county of Marion, state of Kansas, and upon that condition only did this defendant sign her name to said note, and not otherwise; and that defendant never delivered said note to plaintiff, nor authorized the same to be delivered, and if delivered by said Wishart, it was done without the authority or consent of defendant; that said Wishart failed, neglected and refused to execute said mortgage on his homestead in favor of said plaintiff to secure the payment of said note and interest as aforesaid. Wherefore, said note is not the act and deed of this defendant. Defendant having fully answered, asks to be discharged, with her costs.” To this answer the plaintiff demurred, and the district court sustained the demurrer, and the plaintiff in error brings the case here to review that decision. Counsel for the plaintiff in error contend that the note sued on was signed by the plaintiff in error as surety only upon an expressed condition which was never performed, and that the plaintiff in error was therefore not liable; that the note is void because it was never delivered to the defendant in error by the plaintiff in error, or by her authority. It is conceded by the demurrer that the plaintiff knew the fact that M. A. Carter signed the note as surety, but it is nowhere averred that the plaintiff knew of the agreement between M. A. Carter and the principal in said note with reference to the giving of a mortgage. The plaintiff in error contends that the delivery of the note by the surety to the principal after its execution by the surety under an agreement of the kind stated in the answer made the instrument an escrow, and that no validity could be given to it by a delivery in violation of the terms agreed on between the parties. It is true that the holder of an instrument placed in escrow [14] can give it no validity, generally speaking, by a delivery in violation of the agreement. In order to make the instrument an escrow, however, such delivery must be to a third person, not a party to the instrument. See Bouv. Law Dict. and cases therein cited; The State v. Potter, 63 Mo. 212. The note in this case was perfect in form at the time it was delivered to the payee. It is not claimed that the principal made any change in the form of the note nor in the signatures thereto after it was signed by the plaintiff in error. It is the fact that it was delivered in violation of a secret understanding between the principal and the surety, which plaintiff in error claims renders the note void in the hands of the payee, who, for anything that appears in the note, paid full value for it. Many authorities are cited by counsel to sustain the proposition that the note is void as to the surety, but none of them go so far as to sustain the plaintiff’s position in an action brought on a negotiable promissory note. In the case of The State v. Bostwick, 32 N. Y. 445, it is held, that a bond delivered under similar circumstances is void as to the surety; and in the case of Pawling v. United States, 4 Cranch, 219, the same doctrine is held. The New York case comments on the difference in the rule with reference to the delivery of a deed and a delivery of a sealed instrument securing the payment of money, and also on the difference between a bond and a negotiable bill of exchange or promissory note. In the case of Bank v. Luckow, 37 Minn. 542, the delivery was to the agent of the payee; and in the case of Perry v. Patterson, 5 Humph. 133, the delivery was to the attorney of the payee. None of the cases cited by counsel for plaintiff in error are directly in point. The doctrine contended for, even as applied to bonds, is expressly denied, we think, by the weight of authority. (See Dair v. United States, 16 Wall. 1; The State v. Potter, 63 Mo. 212; The State v. Peck, 53 Me. 284.) The precise point presented in this case is very fully considered by the supreme court of Indiana in the case of Deardorff v. Foresman, 24 Ind. 481, where it is held: “ If a surety signs and delivers to his principal an instru [15] ment perfect upon its face, with a condition that it is not to be delivered to the obligee, payee or grantee until some persons who are agreed on shall also execute the same, and the principal delivers the instrument without regard to the condition, and the obligee, payee or grantee has no knowledge of the condition, the delivery will bind the surety.” To the same effect also are the cases of Gage v. Sharp, 24 Iowa, 15; Bonner v. Nelson, 57 Ga. 433; Fowler v. Allen, 10 S. E. Rep. 947. Where a negotiable promissory note, perfect in form, executed as in this case by a number of persons, is intrusted to one of the makers by all, we think there is a presumption that the party so holding the note has authority to deliver it to the payee. When a note so executed is presented by the principal to the payee without any notice to the payee of any understanding between the makers affecting the right of the principal to deliver to the payee, we think he is justified in assuming that the parties who so signed the note intended to be bound thereby, and that he may receive the note and deliver to the principal the consideration therefor, without first making inquiries of the other parties to the instrument for the purpose of learning whether there are any secret agreements or understandings affecting the instrument. We see no error in the ruling of the court below, and the judgment will be affirmed. All the Justices concurring.