Case ID: ad_90/html/0531-01.html
Source: Caselaw Access Project
Author: {"author": "Chase, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Morgan Phillips and Others, Respondents, v. Watson Allen, Appellant.
    
      Diversion of a note from the purpose intended—right of an indorser thereof to have that question submitted to tTie jury—right of action on a note against the accommodation maker, by a party who acquires it from the principal debtor by whom it hots been paid.
    
    The firm of M. Phillips & Co. sold property to one Roe and also to one Allen. February 20, 1900, Roe executed a note for §200, payable to the order of Allen. Allen indorsed the note and delivered it to Phillips & Co. in payment of Roe’s indebtedness. Phillips & Co. indorsed it and procured it to be discounted. May 28, 1900, the note was renewed by a note for $206, signed by Roe and indorsed by Allen and Phillips & Co.
    April 18, 1900, Allen signed a note for $200, made payable to the order of Phillips & Co. and delivered it to Phillips & Co. in payment for property purchased by him or in renewal of a previous note so given; Phillips & Co. indorsed the note and procured it to be discounted.
    On June 25,1900, when the noté of April eighteenth was in the bank, then past due, Allen-signed a note for $206: 50 to the order of Roe. This note was indorsed by Roe and by Phillips & Co.-and delivered: to the bank which!delivered the note of May twenty-eighth, which was not then due, to Roe.
    July tenth, When the noté of June 25,1900, became due, Roe signed Allen’s-name to a nóte of $186.50. The note was then indorsed by Roe and by Phillips & Co. and was used in part renewal of the note of June twenty-fifth, Roe paying the balance in cash. The note of June twenty-fifth was delivered to Roe by the bank'. The note of July tenth, not having been paid when due, Phillips &'Co. took up the note and sued Allen thereon. Allen denied making the note and the action resulted in a judgment in his favor.
    In December, 1901, Roe delivered the note of June 25,1900!, to Phillips & Co. and they brought an action against Allen thereon. Allen, amimg. other defenses, alleged that the note of J une twenty-fifth was signed by him! for the purpose of - renewing his note Of April eighteenth and that Roe and Phillips & Co. diverted ■ the note in suit from that purpose. He also contended that Phillips & Co. were not the real parties in interest, ,the latter defense being based upon the fact that on or about July 17,1900, the amount of Allen’s note of April eighteenth was paid to the bank and that said note was transferred to and now was the property of Roe’s wife.
    
      Held, that it was error for the court to refuse to submit to thé jury the- question whether the note sued upon had been fraudulently diverted.
    
      Quaere, whether Phillips & Co. could recover on the note ini suit, it appearing ■that it had been paid by Roe, the principal debtor, as above; stated. -
    Appeal by the defendant, Watson Allen, from a judgment of the Supreme Court in favor of the plaintiffs, entered in. the office of the clerk of the county of Delaware on the 20th day of May, 1902, upon the verdict of a jury rendered by direction of the court, and also from an order entered in said clerk’s office on the 6th day of March) 1903, denying the defendant’s motion for a new trial made Upon the minutes;. ¡
    I. L. Brayman, for the appellant.
    
      Eugene H. Hanford and Charles H. Seeley, for the respondents.
   Chase, J.:

The plaintiffs are copartners doing business under the firm name of M. Phillips & Co. The plaintiffs sold property to oné Koe and also to the defendant. On February 20, 1900, Eoe signed a note for $200, payable to the order of defendant, and it was indorsed by defendant and delivered to the plaintiffs, in payment of an indebtedness of Eoe. The plaintiffs, indorsed that note, and it was discounted at the Sidney National Bank.. On May 28, 1900, this note was renewed. The amount of the renewal note was $206, payable one month from date, and it was signed by Eoe and indorsed by defendant and plaintiffs. On April .18, 1900, the defendant signed a promissory note for $200, payable one month from date to the order of M. Phillips & Co., and delivered the same to the plaintiffs in payment.for horses purchased by him, or in renewal of a previous note so given. This note was indorsed by the plaintiffs and discounted at said bank. On June 25, 1900, the note of April eighteenth was in. said bank past due, and the note of May twenty-eighth was in said bank, but not then due. A note was then signed by the defendant for $206.50, payable on or before July tenth to the order of Eoe, which note was indorsed by Eoe and by the plaintiffs and delivered to said bank, and the note of May twenty-eighth was delivered to Eoe. When said note became due Eoe signed the defendant’s name to a note of $186.50, which note he then indorsed and the plaintiffs indorsed the same and it was used in part renewal of the $206.50 note of June twenty-fifth, Eoe paying the balance thereof in cash. The note of June twenty-fifth was somewhat mutilated, as is the custom of said bank when a note is paid, and it was then delivered to Eoe by the bank. When the note of July tenth became due it was not paid, and plaintiffs paid the bank the amount due thereon and took the note and subsequently sued the defendant thereon. The defendant by an answer interposed in that action denied the making of said note, and the trial of that action resulted in a judgment in favor of the defendant. In December, 1901, the plaintiffs demanded of Eoe the note of June 25, 1900, and Eoe delivered it to the plaintiffs and they thereupon commenced this action thereon.

The defendant alleges that the plaintiffs are not the real parties in interest, and that the note of June twenty-fifth was signed by him for the purpose of renewing his note of April eighteenth and for no other purpose, and that said Eoe and plaintiffs diverted the note in suit from the purpose for which it was given to them. On or about the 17th day of July, 1900, the amount óf defendant’s nóte of April eighteenth was paid to the bank and said note was transferred to and is now the property of the wife of said Poe. The defendant admits that hq signed the' note in suit, ánd it was coücededly so signed for the purpose of renewing either the note of Poe dated May twenty-eighth or the note of defendant dated April eighteenth.' The court at the conclusion of the trial said to the jury: It appears from the evidence in this case that this note in question was executed for the purpose óf rene wing, a mote signed by Hewitt Poe or a note signed by the defendant, in either' event the plaintiffs are entitled to recover, so you are directed to render a. verdict in fa.vo,r of the plaintiffs for the sum of $207j.26.” '

The defendant asked to go to the jury upon the questions: First. Whether the plaintiffs at the time they took the $186.50 note on the 9th or 10th of July, 190Ó, knew it was not signed;by the defendant. Second. Whether; the plaintiffs áre the real parties in interest-Third.' Whether the note in suit was diverted by plaintiffs and Poe from the purpose for which it was executed.

The court in refusing to submit the issues to the jury evidently assumed that the defendant in any action hereafter brought against him upon the note of April eighteenth could allege ánd prove that he gave a note to Poe and plaintiffs for the purpose of renewing said note of April eighteenth, and the court must also have assumed that such proof together with proof that a judgment] had been rendered against the defendant on said note so given for the purpose of renewing the note of April eighteenth, notwithstanding Such note had been diverted from .the purpose for which it was given, would be a complete defense to any action so to be brought ¡upon said note of April eighteenth. The bank was not in any wáy] a party to the alleged diversion of said note of Juñe twenty-fifth, and the note of April eighteenth was not paid or in any way affected by the alleged unauthorized and fraudulent diversion of such note by Poe and the plaintiffs. If an action had been brought by the baink against the, defendant On the note of April eighteenth, the facts! as claimed by the defendant herein would not have been a defense to such action, and if not a defense in an action by the bank such facts would not be a defense in an action brought by Mrs. Poe if she obtained her title in good faith directly from the bank. The parties to this action are directly concerned in the question of the diversion of the nóte. If the plaintiffs fraudulently diverted the note from the purpose for which it was given, they should not be allowed to recover against -the defendant thereon, and the question of the diversion of the note .should have been submitted to the jury.

A serious question also arises as to whether the plaintiff can in any event recover on this note which was paid by Roe, the principal ■debtor thereon, in the manner stated. It may be assumed that the ■bank on discovering that the defendant did not sign the note of July .tenth, could have required Roe to return the note of June twenty-fifth in exchange for the note then in their possession. That was not done. The note of July tenth was paid to the bank by the plaintiffs who had by their indorsement guaranteed the genuineness ■of the maker’s signature thereto. The plaintiffs are the original -creditors, and Roe, the original debtor, had given the note for which the note in question was used as a renewal, in payment of his indebtedness to them. As the note of June twenty-fifth was used the defendant was an accommodation maker thereof, of which fact the plaintiffs had knowledge. Whether the plaintiffs have, on their. •evidence, any legal claim against the defendant on the note which was so taken from the bank and held by the principal debtor for over a year before it was redelivered to the plaintiffs, is doubtful. Even if the note of June twenty-fifth was not diverted from the purpose for which it was given, if the plaintiffs when they indorsed the note of $186.50 knew that Roe had signed the defendant’s name thereon, and they also knew the extent of Roe’s authority from the ■defendant to sign his name to or on notes, and all the circumstances connected with the same, they should not now be allowed to say that the note of June twenty-fifth was not paid as against the defendant. The defendant at least should have an opportunity to have the questions of fact, the determination of which is vital to the maintenance of this action, submitted to and decided by a jury. The judgment and order should be reversed and a new trial granted, with costs to the appellant to abide the event.

All concurred.

Judgment and order reversed and new trial granted, with costs to appellant to abide event.