Aldrich v. Peckham

The opinion of the court was delivered by Garrison J. The first request was a proper instruction, and one that, in view of the admission in evidence of the agreement between the maker and the payee of the note, was essential to the correct determination of the plaintiff’s rights either as endorser of the note or as its holder before maturity. — 715 — The refusal of the trial court to charge this request was injurious, and hence reversible error, unless the legal effect of the request was substantially and correctly covered by what the court said in its charge to the jury. 11 Encycl. Pl. & Pr. 214. What the court said to the jury touching the issue to which this request was pertinent is given in full in the prefatory statement of facts. That the instruction thus given was not a substantial compliance with the plaintiff's request appears from the following considerations: In the first place, the charge makes no mention at all of the agreement. It is, however, only upon the assumption that the plaintiff was chargeable with knowledge of what was in that agreement that the question of bad faith was imported into the case. The request, moreover, dealt properly with the legal effect of the plaintiff's lack of knowl-' edge of the contents of the agreement at the period of time when he endorsed the note, whereas the charge directs the attention of the jury to the plaintiff's knowledge or notice of bad faith not at such period of time, but at the inception of the note. The charge also incorrectly treated the plaintiff’s knowledge of “such circumstances as would lead him, as an intelligent man, to infer” fraud as the equivalent of bad faith. This instruction is not sanctioned by the rule laid down in Hamilton v. Vought, 5 Vroom 187, and the many cases that follow that decision; in fact, this feature of the present charge is substantially the same as the judicial instruction that was reprobated in the opinion referred to. The correct rule, as tersely stated by Mr. Justice Dixon, in Read v. Abbott, 16 Id. 303, is: “Bad faith, not merely notice of suspicious circumstances, is necessary to defeat recovery.” Laubach v. Pursell, 6 Id. 434; Armour v. McMichael, 7 Id. 92; National Bank of the Republic v. Young, Receiver, 14 Stew. Eq. 531; Fifth Ward Savings Bank v. First National Bank 19 Vroom 513; Hebberd v. Southwestern L. & C. Co., 10 Dick. Ch. Rep. 18. It should be remarked in passing that at the time the note — 716 — in suit was given tlie Negotiable Instrument act, approved in April, 1902, was not in effect. Quite apart, however, from these criticisms the charge is, in other respects, both inadequate as a substitute for the plaintiff’s request and erroneous in point of law. Bearing in mind that the claim of fraud in this case springs entirely from the circumstance that the agreement between .Dali and Mrs. Peekham was brought to the plaintiff’s attention when he endorsed the note, the only legal theory of fraud to be deduced from the general language employed in the charge is that the plaintiff either actually read the agreement, or that if he did not he ought to have done so, and hence, in either event, is to be charged with so much of its contents as bore upon the negotiable qualities of the note and upon the consideration upon which it was given, and further, that being-charged with this knowledge, the inquiry which it was the plaintiff’s duty to institute would have elicited the fact as to the then siaivs of the building operation between the original parties to the agreement, and that if the plaintiff, with the knowledge thus acquired, endorsed the note, he did so in bad faith, which was a fraud upon its maker. Not one of the propositions, however, contained in this theorem will stand the test of examination. The testimony is that the plaintiff did not read the agreement or know what it contained, hence if he is to be charged with such knowledge, it must be by force of legal imputation resulting from the fact that he ought to have read it — that is, that his failure to read the contract ivas evidence of fraud. This contention-rests upon the hypothesis that it was legally incumbent upon the plaintiff to read the agreement. The law, however, is otherwise. In the case of Alexander v. Brogley, 34 Vroom 307, decided in this court, it was held that the signatures of the defendants, although affixed to a written contract, did not charge them with knowledge of its contents, or even with knowledge of the fact that they were signing a contract, in view of the representations made to them at the. time their signatures were obtained. In the later case of Williams v. Leisin, 43 Id. 410, in which I lie dclYndaut was charged with — 717 — knowledge of the contents of an agreement that he had signed, Mr. Justice Dixon, who had delivered the opinion in Alexander v. Brogley, points out that the distinction between the two cases lies in the circumstance that in the earlier case the statements made to the defendants involved no duty upon their part to examine the paper in question, whereas in the latter case the statement made to the defendant amounted to a notification in respect to the writing in that case that directly involved the dirty of examination. The principle elucidated by these cases applies to the situation disclosed by the testimony in the present case, since it cannot he said that a higher duty exists with respect to a writing that is at most collateral than that which exists with respect to the document a person is actually signing. The testimony in the present case is that when Dali requested the plaintiff to endorse Mrs. Peckham’s note for discount he stated to him that he had obtained the note in payment for some property in Montclair that he had sold to Mrs. Peckham, the maker of the note, and ihat in this connection he showed the plaintiff the signature of Mrs. Peckham to a paper, which he stated was the contract of sale. There being nothing in this statement that notified the plaintiff that the paper contained any limitation upon the negotiable quality of the note that he was requested to endorse, he was under no duty to read the contract or to acquaint himself with its contents. Even assuming that the plaintiff was .negligent in not reading what he was told was the contract of sale, such negligence would not rise to the dignity of fraud. Even if it be conceded that it was the plaintiff’s duty to read the contract signed by Mrs. Peckham, or, to put it more strongly still, that in fact he did read it, there is nothing in that contract that even tends to impute fraud to him in endorsing the note that had been given to Dali under its terms. The agreement expressly provided that the note, when received by Dali, should be discounted at a bank, the only duty assumed by him being that he would not transfer the note except for the purpose of bank discount. The sole object of the plaintiff’s accommodation endorsement of the note was to have it discounted at a bank that had agreed to discount -the — 718 — note if the plaintiff would endorse it. The endorsement of the note was therefore not within the restriction of the agreement, assuming that the negotiability of the note could be thus restricted, but, on the contiary, was within the express object for which the note was given. If we go even further, and assume that the plaintiff not only read the contract, but that he also ascertained the precise status of the building- operation contemplated by it, there was nothing in that status to render fraudulent the plaintiff’s endorsement of the note. Upon this hypothesis the plaintiff would have seen from the contract itself that the consideration of the note was the agreement of Dali to improve the property at the expense of Mrs. Peckham and according to plans to be agreed upon by her. He would have seen that the completion of such improvements was not a condition precedent to the giving of the note, and that the time of the completion of such building was not of the essence, of the contract, but, on the contrary, that both depended upon Mrs. Peckham’s reaching an agreement as to the plans. Pie would have become informed that Mrs. Peckham, up to that time, had not agreed upon any plans for the improvement of the lot that came within the sum she was ■willing to expend for that purpose, and that she and Dali were then at odds over the pajrment of an architect’s bill. AIL of this simply left Dali’s agreement to improve the lot unperformed. It was not, however, Dali’s performance of his agreement to improve the lot that was the consideration for the giving of the note, but his agreement to improve. For all that appeared in the case, this agreement was unaffected by the delay of Mrs. Peckham in reaching a conclusion as to the plans for her house, or in refusing to pay the bill of the architect. Upon these several considerations our conclusion is that the charge, which was in the foregoing respects incorrect and erroneous, was not a substantial compliance with the plaintiff’s proper request, and hence that the refusal to charge such request was reversible error. The second request of the plaintiff, namely, “If the plaintiff, for value, and before maturity of said note, became — 719 — flie legal holder of same, he is entitled to recover full amount from the defendants herein,” should also have been charged. It was a correct statement of the legal status of the holder of a note before maturity, which the plaintiff was, according to the undisputed testimony, for when Dali received the note from the bank in exchange for the check the plaintiff had drawn to his order, and turned the note over to the plaintiff as part of a single transaction, the only rational explanation of such transaction is that Dali was acting for the plaintiff in paying to the bank the price of the note with the plaintiff’s money. In such a transaction the knowledge possessed by the plaintiff of the agreement between the parties to the note, and the status of such parties with respect to the performance thereof, is an immaterial circumstance. National Bank v. Hewitt, 30 Vroom 57. The charge of the trial court, for reasons that have already been stated, did not adequately cover the legal proposition correctly embodied in this request. "Whether a verdict should have been directed for the plaintiff cannot now be definitely decided, since a motion for such direction was not made at the trial. The plaintiff, upon the errors assigned, is entitled to a venire ele novo, and to that end the judgment of the Circuit Court is reversed. For affirmance — -None. For reversal — The Chancellor, Chief Justice, Garrison, Hendrickson, Pitney, Swayze, Reed, Trenci-iard, Booert, Vredenburgi-i, Green, Gray, Dill, J.J. 13.