Case ID: sw_207/html/0596-01.html
Source: Caselaw Access Project
Author: {"author": "LEVY, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

COMMERCIAL CREDIT CO. v. GILES.
    (No. 1983.)
    (Court of Civil Appeals of Texas. Texarkana.
    Nov. 2, 1918.)
    1. Alteration op Instruments 12-Notes Given as Part op Order — Separation' by Payee — Authority.
    A contract order for the purchase of goods payable by a series of negotiable notes; providing that the payee might detach the notes from the order, being consistent, contemporaneous agreement, authorized the payee to detach the notes.
    2. Bills and Notes <©==>47 — Notes Attached to Order por Goods — Construction.
    A mere recital in a contract order that the purchase price of the goods might be paid in notes attached thereto did not make the payer’s obligation a conditional one.
    
      3. Alteration of Instruments 16— “Material Alteration” — Effect.
    Any material alteration of an instrument destroys its obligation and renders it unenforceable, and any alteration causing the instrument to speak differently in legal effect from that which it spoke originally is a “material alteration.”
    [Ed. Note. — For other definitions, see Words and Phrases, First and Second Series, Material Alteration.]
    4. Alteration of Instruments ⅞^9 — Detaching Note from Contract Order — Materiality.
    The payee’s detachment of a series of negotiable notes from a contract order permitting their detachment was not a material alteration rendering the notes void.
    5. Bills and Notes <S=>365(1) — Liability of Maker — Innocent Holder.
    The maker Of negotiable notes attached to a contract order permitting their detachment by the payee would be liable to an innocent holder even though the order contract and notes were revoked in the hands of the payee and it could not maintain an action thereon against the maker.
    6. Bills and Notes <§=>363 — Action on N ote — Consideration—Recovery.
    In action on notes originally attached to a contract order and detached by the payee, as permitted by the order, and sold to plaintiff, an innocent holder, for 76 per cent, of the face of the notes until the remainder should be paid by the maker, the holder’s recovery should be limited to 76 per cent, of the face of the notes.
    Appeal from Fannin County Court; S. F. Leslie, Judge.
    Action by the Commercial Credit Company against Ellis Giles. Judgment for defendant, and plaintiff appeals.
    Reversed, and judgment rendered for plaintiff.
    The appellant, a corporation, sued the ap-pellee on a promissory note signed by him and made payable to the order of the Partin Manufacturing Company. The appellant claimed that it was an innocent purchaser of the noto in due course of trade, before maturity, and for value. The appellee answered by denial, and pleaded a material alteration of the note, failure of the consideration, cancellation, and fraudulent circulation of the same by the Partin Manufacturing Company, and notice to the appellant before institution of the suit that the note was fraudulent, without consideration, and void, and appellee would not pay it. The appellant made reply that he was an innocent purchaser, and with a plea of estoppel. There was a trial before the court without a jury, and judgment was entered in favor of the appellee.
    The court made findings of fact, here adopted, substantially as follows: That on April 13, 1916, the appellee executed a written order to the Partin Manufacturing Company, having its general office at Memphis, Tenn., for certain merchandise to be delivered to him at Leonard, Tex. The order further contained an agreement on the part of the Partin Manufacturing Company to deliver the goods and to provide certain printed and advertising matter intended to increase the sales of the appellee, a merchant, and to guarantee an increase in the sales and collections of ap-pellee to the amount of $10,000 in the next 12 months, and to pay 9 cents on every dollar that the appellee fell short of that amount of increase. It was provided:
    “3. Terms: All the above-named goods to be included in the purchase price of $900.00 Three per cent, off cash in ten days. By special agreement the above can be paid in six installments of one hundred and fifty dollars ($150.00) each, in three, four, five, six, seven and eight months if the notes attached hereto properly signed accompany this order. The attached notes are executed and tendered in settlement of this order, and Partin Mfg. Co. is authorized to detach same on acceptance of this order. If order is not accepted notes are to be canceled and returned to purchaser.
    “4. In consideration of the special method set forth in your plan and the terms and agreement herein contained, this order cannot be countermanded, but to stand as given on day and date hereof. Any verbal or written agreement not embraced herein will not be binding on Partin Mfg. Co. This order is given with a •full and complete understanding of the conditions herein and after reading same.”
    Following after the signature of the appel-lee, and on the same sheet of paper containing the above order and agreement, was the note sued on and five others of the same denomination signed by the appellee and payable to the order of the Partin Manufacturing Company in three, four, five, six, seven, and eight months, respectively, after date. All of the notes bear date of April 13, 1916. At the time the notes were signed by the appel-lee, they were all contained on one sheet of paper, and there were no lines nor perforar tions between said notes; but the order and the agreement and the notes were all on the same sheet of paper. The order and agreement and the notes were signed by the appel-lee with the understanding that they were to be forwarded to the Partin Manufacturing Company at Memphis, Tenn., by its salesman then present at Leonard, Tex., for acceptance or rejection. But the appellee countermanded and revoked the order and agreement before acceptance by the Partin Manufacturing Company of said order and agreement and notes. The court further finds:
    “That after said contract and said notes were placed in the hands of the Partin Manufacturing Company, and after the Partin Manufacturing Company had notice of the cancellation of said contract and notes by said defendant Ellis Giles, said Partin Manufacturing Company cut said notes from the sheet of paper in which they were printed so as to separate the,notes from each other and from the contract to which they were attached, and Partin Manufacturing Company fraudulently circulated the note sued on.
    “That after said notes were so detached, and prior to the maturity of same or any of same, said Partin Manufacturing Oompany negotiated the note sued on to the Commercial Credit Company for a valuable consideration, said Commercial Credit Company not having any actual notice of any defect or vice in said notes, said Partin Manufacturing Company guaranteeing the payment of said note and endorsing the same over to said Commercial Credit Company.
    “That Partin Manufacturing Company and the plaintiff are both corporations, duly incorporated, and neither of such corporations having a domicile in the state of Texas. That defendant prior to the institution of this suit gave notice to plaintiff that he would not pay the note sued on for the reason that the same was fraudulent and without consideration. That said Partin Manufacturing Company is solvent. That said Commercial Credit Company during the year 1916 purchased three batches of notes from the Partin Manufacturing Company as follows: Approximately $10,000.-00 on April 3, 1916, another lot of about $11.-000.00 on April 24, 1916, approximately $15,-000.00 on May 2, 1916, the notes of Ellis Giles, including the ones sued on, being included in the last transaction. Of the first lot of paper purchased as aforesaid, 81 per cent, has been paid prior to the 19th day of September, 1917, of the paper purchased April 24, 1916, which included the note sued on, 61 per cent, has been paid prior to September 19, 1917. All of the paper sold by the Partin Manufacturing Company to said Commercial Credit Company was disposed of on the following terms and conditions: 76 per cent, of the amount of said notes were paid in cash by said Commercial Credit Company, and the balance of 24 per cent, being withheld by said Commercial Credit Company to be paid to the Partin Manufacturing Company only upon payment to the Commercial Credit Company of the face amount of the notes purchased from it. I further find that no payments further than the said 76 per cent, has ever been paid.”
    Thos. P. Steger, of Bonham, and J. G. Mc-Grady, of El Paso, for appellant.
    Cunningham & McMahon, of Bonham, for appellee.
   LEVY, J.

(after stating the facts as above). Although it was determined as a fact that the appellant purchased the note before maturity, for a valuable consideration, without notice of a fraud, the court concluded, as a matter of law, that the detachment and separation of the note sued on were void, and that the appellant was not entitled to have judgment against the appellee, who was the maker of the note. Appellant challenges this conclusion and asks the reversal of this judgment of the court. There does not appear any erasure or addition or subtraction of terms of the notes. The facts relied on to show alteration are only that the notes were cut and detached from the same piece of paper upon which the order contract was written, and then circulated. The contract order referred to the notes in the following words only:

“3. Terms: All the above-named goods to be included in the purchase price of $900.00. Three per cent, off cash in ten days. By special agreement the above can be paid in six installments of one hundred and fifty dollars ($150.00) each, in three, four, five, six, seven and eight months if the notes attached hereto properly signed accompany this order. The attached notes are executed and tendered in settlement of this order, anS Partin Mfg. Co. is authorized to detach same on acceptance of this order. If the order is not accepted notes are to be canceled and returned to purchaser.”
The notes are worded as follows:
“$150.00 P. O. Leonard; State, Texas.
“Date, Apr. 13th, 1916.
“Eight months after date for value received I promise to pay to the order of Partin Manufacturing Oompany, Incorporated, one hundred and fifty dollars ($150.00) at First State Bank, Leonard, Texas. [Signed] Ellis Giles.”

It is evident from the face of the contract order that the maker contemplated that the attached notes would, in a certain event, be detached from the contract order; and it appears from the face of the note that it is a negotiable promissory note. The contract order and the notes together appear simply contemporaneous agreements, and with no terms or conditions in the contract order qualifying, varying, or affecting the terms of the notes, and there is no repug-nancy between them. And the separation of the notes from the contract order presented no different situation, either in fact or in legal effect, than, for illustration, had the notes been written upon a distinct and separate sheet of paper and pinned to the order contract. The mere recital in the contract order that the purchase price of the goods can be paid in notes does not make the obligation a conditional one. It is well settled that any material alteration of an instrument destroys the obligation of the contract and renders it unenforceable; and unquestionably any alteration which causes the instrument to speak different, in legal effect, from that which it spoke originally, is a material alteration. 3 Page on Contracts, § 1511; 3 Elliott on Contracts, § 2012. But, on the contrary, if there is no such change in language or meaning, and the legal validity and operation of the instrument, or its apparent regularity, is not affected, then there is not a material alteration rendering the instrument void. 2 Daniel on Negotiable Instruments (5th Ed.) § 1398; 1 R. C. L. par. 4, p. 967; Tutt v. Thornton, 57 Tex. 35. And it is believed the facts of the instant case do not warrant the conclusion of law that there was such material alteration as rendered the notes absolutely void. The case of Spencer v. Triplett, 184 S. W. 712, is, it is thought, distinguishable from this case. There the court stated that: 1

“The note, when construed in connection with the remainder of the contract, was not negotiable.”

This construction implies that the court concluded from the record that the order to the Acme Sales Company contained agreements qualifying the terms of the note. And the authorities cited by the court show that in.the writing there were agreements qualifying the terms of the notes, and that their consequent separation legally affected and changed the liability of the maker of the notes. Therefore the facts therein would amount to an alteration and have that legal effect.

The note not being void upon the contention of alteration, the maker would be liable to an innocent holder, as the court finds the appellant to be, although the order contract and the notes were canceled and revoked in the hands of the Partin Manufacturing Company, and the Partin Manufacturing Company could not maintain an action thereon against the maker. For, as said in Greneaux v. Wheeler, 6 Tex. 515:

“The title is derived from the instrument itself, and not from the title, which the party has who transfers it. The possession of the note gives the holder disposing power over the same. The note passes as a species of currency, without inquiry as to the title of the holder. It is immaterial whether the vendor be an attorney at law, or not; or whether he has obtained it * * * by fraud, by finding, or upon trust. The title of the transferee depends upon the possession of the vendor, but on none of the circumstances under which it was obtained. This possession gives him authority to sell; and if the buyer has acted in good faith, and paid a valuable consideration, his title cannot be impugned.”

Appellee contends the judgment should be affirmed under the authority of Van Winkle Gin & Mach. Co. v. Citizens’ Bank of Buffalo, 89 Tex. 147, 33 S. W. 862. It is believed that the facts here are essentially different, and that the same principle of that ease does pot apply here.

It is concluded that the judgment should be reversed, and that judgment should be here now rendered in favor of the appellant; but, in view of the finding of the court that the appellant paid only 76 per cent, of the face of the note and contracted with the Partin Manufacturing Company not to pay the balance of 24 per cent, until that sum of money was paid over by the maker, a recovery, in the special facts of this case, may be allowed, it is thought, only to the extent of 76 per cent, of the face of the note. The costs of the trial court and of this court will be taxed against the appellee. 
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