Case ID: ohio-st_41/html/0307-01.html
Source: Caselaw Access Project
Author: {"author": "Martin, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Thompson v. Massie.
    1. A creditor, who has not proved his claim, may, pending proceedings in bankruptcy, commence a suit on a provable claim against the bankrupt, notwithstanding Sec. 5106 (U. S. Rev. Stats.) prohibits the prosecution of such suit to final judgment until the question of his discharge shall have been determined.
    2. A material alteration of a promissory note by one of the joint payees and holders avoids it as to sureties not assenting thereto.
    Error. Reserved in the District Court of Ross County.
    The original action was upon three promissory notes; each of them by the same makers, in the same amount, and to the same payees, differing only in time of maturity. One of them reads as follows :
    $2,904. Chillicothe, O., June 1st, 1875.
    On or before the 1st day of May, 1876, we, or either of us, promise to pay to the order of Thomas Massie, Gertrude Massie, J. L. and Mary M. Cochran, twenty-nine hundred and four dollars. Yalue received.
    C. B. Thompson.
    A. W. Thompson.
    J. C. Thompson.
    The payees, the defendants in error, were plaintiffs and the makers were defendants. C. B. Thompson was the principal and the other makers his sureties. C. B. Thompson was summoned in Ross county, the others in Pickaway county, where they respectively resided. The defendants, severally, pleaded to the jurisdiction of the court, setting up that C. B. Thompson had been duly adjudged a bankrupt before the commencement of this action and that the proceedings were still pending. The sureties further set up in their pleas the facts as to the service of summons above stated, and claimed that C. B. Thompson was not á substantial party and the service on them was ineffective.
    A demurrer was sustained to these answers.
    Thereupon the sureties answered, substantially averring that after the delivery of the notes they were, severally, by the procurement of the plaintiffs, altered without their assent, by the addition of these words to the end of each note: “ with 8 per cent, interest after maturity.” The reply was a general denial.
    Subsequently C. B. Thompson filed a supplemental answer setting forth that.he had duly obtained his discharge in the bankruptcy proceedings.
    On the trial it was proved, and it is admitted, that the defendant C. B. Thompson by the procurement of Thomas Massie, one of the plaintiffs, altered each of the notes after delivery by adding the interest clause above quoted; and that it was done without the knowledge of the other payees and makers.
    At the May Term, 1880, the case was submitted to the court and passed to judgment with special findings. The judgment exempts C. B. Thompson from further proceedings and adjudges Thomas Massie barred of recovery against the sureties and gives a recovery in favor of the other plaintiffs against the sureties for an alleged proportionate share of the amount due on the notes as between them and their co-payee, Thomas Massie.
    A motion for a new trial for errors in admitting and rejecting testimony and in the findings of fact and law was overruled and exceptions duly taken.
    ■ A petition in error filed in the district court is here on a reservation. The errors assigned are the same as stated in the motion for new trial, and also the overruling the motion.
    
      The entry of the special findings and judgment is as follows:
    And afterward, to wit: At the May term, A. D. 1880, to wit: Friday, July 16th, 1880.
    This day came the said plaintiffs and made known to the court that since the commencement of this action, the said Gertrude Massie had intermarried with one William Fullerton, and it appearing that the interest of the said Gertrude in the promissory note set out in the several causes of action named in the petition was her separate property, it is ordered that this action proceed in her name as Gertrude Fullerton, jointly with her co-plaintiff, and thereupon this cause came on to be heard before the court, upon the issues joined between the parties, neither party requiring a jury, and the evidence and the arguments of counsel thereon being heard, the court doth find—
    1st. That the facts set forth in the last answer of C. B. Thompson, settling up his discharge in bankruptcy under the laws of the United States are true, and that such discharge is a bar to any further proceedings or judgment against the said C. B. Thompson on the several causes of action set forth in said petition.
    2d. That the said three notes set forth in the said plaintiffs’ several causes of action, together with one other note given contemporaneously with the note named in said first cause of action for the sum of $2,904, executed by the defendants to the plaintiffs, and payable on February 1st, 1876, were given in pursuance of the stipulations of an agreement of lease executed, acknowledged and recorded as required by law, dated September 22d, 1873, by which the plaintiffs leased to the said C. B. Thompson, 704 acres of land in Ross county, Ohio, owned by the said Thomas Massie and Gertrude Massie in fee, but subject to a life estate in favor of the said Mary M. Cochran in a portion thereof, for the term of five years, commencing on January 1st, 1874, at an annual rental of eight dollars and twenty-five cents per acre, to become due in equal installments on the first day of February, and first day of May, 1875, and on the same days of each succeeding year, until and including the year 1879; the said installments to be further evidenced and secured by negotiable notes with endorsers approved by the president or cashier of either of the National banks of Chillicothey Ohio, to be executed and delivered to the plaintiffs as lessors for each year’s rent, on or before the first day of June, of the year immediately preceding the maturity of the payment of said rent for each year, and on which said agreement of lease the said A; W. Thompson wrote thereunder, a stipulation in the words and figures following, to wit: In consideration of the foregoing lease, I guarantee that the said C. B. Thompson will faithfully keep and perform all the obligations and undertakings imposed upon him by the foregoing deed of lease. Witness my hand and seal this 22d day of September, 1873, which stipulation was duly signed and sealed by the said A. W. Thompson.
    That the said note named in said first cause of action, together with the said other note given contemporaneously therewith as aforesaid, wrere executed and delivered to evidence and secure the payment of the said rent for the year 1875, and the said notes named in said second and third causes of action, to evidence and secure the said rent due for the year 1876.
    That the said plaintiffs held said notes as their joint property, the interest of the said Mary M. Cochran in the said annual rental, amounting to the sum of eleven hundred dollars in each year, and the remainder amounting in each year to $4,708, belonging one half to said Thomas Massie, and one half to the said Gertrude Massie, “now Gertrude Fullerton.”
    That the said other note given contemporaneous^ with the note named in said first cause of action for $2,904, and payable February 1st, 1876, was, after the maturity thereof; discharged by said C. B. Thompson, and that thereafter, the interest of the said Mary M. Cochran in said three notes named in said petition was the sum of $550, in each of the same, and the remainder belonged equally to said Thomas and Gertrude, one half to each and so continued, except as diminished by payments on said notes as hereinafter found.
    3d. That the memorandum or writing upon said several notes referred to in said petition, and in the amended answer of A. W. and J. C. Thompson, was placed and written upon said notes by the said C. B. Thompson, with the knowledge and assent, and by the procurement of the said Thomas Massie, and is as to him a material alteration of the terms of said note.
    4th. That the said memorandum or writing was so made, without the knowledge or assent of the said A. W. and J. C. Thompson, who are hereby found to be merely sureties for said C. B. Thompson on said notes, and without any affirmance of the same by them, and that as against the said Thomas Massie and to the extent of any interest which he had in the said notes, the said sureties were discharged from liability thereon by reason of said alteration.
    5th. That the said notes were in the possession of the said Thomas Massie merely for safe keeping, and to receive payment thereof when due, and that he had no power or authority from his said co-plaintiffs, the said Gertrude Massie, now Gertrude Fullerton, aiid the said John L. Cochran and Mary M. Cochran, then or at any time to procure or assent to any alterations of the terms of said notes or otherwise, and that the said attempted alteration was made and procured wholly without their knowledge, and has not been at any time affirmed or assented to by them or either of them, and that said notes are as against the said A. W. Thompson and J. C. Thompson, and to the extent of the interest of the said Gertrude Fullerton and John L. Cochran and Mary M. Cochran, in full force according to their original tenor and effect.
    6th. The court further finds upon the admission of the .parties now here in open court made, that in addition to the payment made and credited upon said note set forth in said first cause of action, as stated in said petition, there have been paid on said notes, since the commencement of this action, by the assignee in bankruptcy of said C. B. Thompson, and at the times following, the following sums of money, which are entitled to be credited on said three several notes as follows, to wit: On said note, in said first cause of action, mentioned, $164.44 on January 31st, 1878, $164.48 on September 9, 1878, and $256.95 on October 31st, 1879.
    On said note in said second cause of action named, $236.26 on January 31st, 1878, $236.26 on September 9th, 1878, and $369.16 on October 13th, 1879.
    On said note in said third cause of action named, $232.78 on January 31st, 1878, $232.78 on September 9th, 1878, and $363.71 on October 13th, 1879. And that after crediting all of said payments upon the said notes respectively, there remains due thereon from the said A. W. Thompson and J. C. Thompson (irrespective of the discharge of the interest therein of the said Thomas Massie, as heretofore found), on the 28th day of May, 1880, the sum of seven thousand and thirty-four dollars and sixty-four cents, of which there would have been due to the said Thomas Massie (irrespective of said discharge), the sum of twenty-eight hundred and fifty-o.ne dollars and sixteen cents, and to the said John L. Cochran and Mary M. Cochran, in right of the said Mary, the sum of $1,332.32, which said sums are now due to the said Gertrude Fullerton and John L. Cochran and Mary, his wife, in right of the said Mary (amounting in the aggregate to the sum of $4,183.48), with interest from said May 28th, 1880. Wherefore it is considered :
    1st. That the said plaintiffs be and they are hereby barred by reason of the discharge in bankruptcy of the said'C. B. Thompson from any further proceeding or recovery against him, on either of the causes of action set forth in said petition.
    2d. That the said Thomas Massie be and is hereby barred from any further proceeding and recovery as against the said A. W. Thompson and J. C.' Thompson, or either of them, upon the causes of action: set forth in said petition, to the extent of the interest of the said Thomas in the same, as hereinbefore found and determined.
    3d. That the said Gertrude Massie, now Gertrude Fullerton, and the said John L. Cochran and Mary M. Cochran, his wife, in right of the said Mary, recover of the said A. W. Thompson and J. C. Thompson, the said sum of forty-one hundred and eighty-three dollars and forty-eight cents (^4,183.48), so found, to be due therein as aforesaid, and in the proportions so found with interest from said May 28th, 1880, and also their costs in this behalf expended, taxed to-dollars and — cents.
    A motion for new trial was overruled and exception taken. The cause was by the district court reserved to this court for its determination.
    
      P. C. Smith for plaintiff in error:
    I. As to the question of jurisdiction we say:
    No judgment could be taken against C. B. Thompson, and no action could be commenced against him after filing his petition in bankruptcy. Bump on Bankruptcy, 147-383. See 21 Original Bankrupt Acts, sec. 5106, Rev. Statutes U. S.
    Actions must be brought in the county where the defendant or one of the defendants reside, or may be summoned. Rev. Stats., § 5031. And the defendant must have a real and substantial adverse interest. Allen v. Miller, 11 Ohio St., 374. As no action could be maintained against C. B. Thompson, who resided in and was served in Ross County, the Court had no jurisdiction over the other defendants who resided in Pickaway County.
    As to the effect of a material alteration of a note as to sureties see Newell v. Mayberry, 3 Leigh, 250; Mills v. Starr, 2 Bailey, 359; Martindale v. Follett, 1 N. H., 95; Hatch v. Hatch, 9 Mass., 307; Warring v. Smith, 2 Barb., ch. 119; Bonser v. Cox, 4 Beav., 379; Draper v. Wood, 112 Mass., 315, S. C., 17, Am. Rep., 92; Edwards on Bills, 681; 2 Parsons Contr., 223; Brownell v. Winnie, 29 N. Y., 407; Meyer v. Huneke, 55 Id., 412; Booth v. Powers, 56 N. Y., 22; Penny 
      v. Corwithe, 18 Johns., 499; Comrs. v. Hannion, 1 Nott & McCord, 554; Miller v. Stewart, 4 Wash., C. C. Rep., 26; Barrington v. Bank of Washington, 14 Serg. and R., 424; Heffelfinger v. Shutz, 16 Serg. and R., 44; Harch v. Kepler, 28 Ohio St., 200; Brown v. Jones, 3 Porlor (Ala.), 429; Ivory v. Campbell, 33 Mo., 398; 6 Wait’s Act. and Def., 490; McGrath v. Clark, 56 N. Y., 34; 13 Ohio St., 364; Fulmer v. Seitz, 68 Pa. St., 37; Patterson v. McNeely, 16 Ohio St., 348; Bowman v. Mitchell, 79 Ind., 84.
    The alteration was mafae at the solicitation of Thomas Massie, who had an interest in the notes. Fullerton v. Sturges, 4 Ohio St., 530; Berry v. R'y. Co., 26 Ohio St., 673; Nunney v. Colton, 1 Hawks., 222; Wright v. Wright, 2 Halsted, 175; Morris v. Vanderen, 1 Dal., 67; Jackson v. Malin, 15 John., 293; Cutts v. U. S., 1 Gall., 27; Piggott's Case, 11 Coke, 27; Hunt v. Adams, 6 Mass., 519; 3 Addison on Contracts, §§ 1280, 1281; Williams v. Van Tuyl, 2 Ohio St., 336 ; Warring v. Smith, 2 Barb. Ch., 119; 1 Story Eq. Jur., § 325; 2 Daniels on Neg. Inst., § 1387; Bank v. Hall, 1 Halst., 215; Smith v. Weld, 2 Pa. St., 54; Dolbier v. Norton, 17 Maine, 397; 2 Wall., 219; 9 Wheat., 680.
    III. Nor is the rule avoided as to Gertrude Massie, J. L. Cochran and Mary M. Cochran, who claim that they did not know of the alteration, authorize or.ratify it.
    The action is based on the altered notes, on notes that the defendants, A. W. Thompson and J. C. Thompson, never made or signed, on obligations that they never saw or authorized.
    The alteration in said notes, which destroys their validity, was made by the holder of the notes — one who held the notes by the consent of all the parties interested therein. The alteration was made at the solicitation of the party, who was intrusted by all the payees named in said notes with authority to take and hold, and collect them. With this large authority intrusted to Thomas Massie, he, while the notes were in his possession, solicited the principal in said notes to alter the same, by increasing the rate of interest, and they were altered accordingly, a new contract was made, one that the defendants, A. W. Thompson and J. C. Thompson, never entered into.
    Such alteration, made under such circumstances, releases the sureties, who had no knowledge of and did not consent thereto. Wood v. Steele, 6 Wall., 80; Master v. Miller, 4 Term Rep., 320; 1 Smith’s L. Cas., 1141; 36 L. J., 6 P., 141; Bangs v. Strong, 10 Paige, 11; 7 Hill, 250; 4 Comst., 315; Clark v. Patton, 4 J. J. Marshall (Ky.), 31.
    
      McClintic & Smith, for defendant in error.
    I. There was nothing to prohibit the bringing of the action in the county of Ross, where C. B. Thompson, one of the defendants resided, and where a summons could be served upon him. His interest, as a mulcer of the notes, was necessarily adverse to that of the plaintiffs. His interest was not collateral or nominal merely, but direct and substantial. The right of the plaintiffs to sue him, and, ultimately, to obtain a judgment against him was not taken away by the commencement of proceedings in bankruptcy. There could not even be a stay of proceedings, under section 5106, except on his own application. His final discharge was, at best, a mere contingency, which might never come to pass. The bankrupt had a long gauntlet to run of grounds for opposing his discharge, and of duties to be performed under the provisions of the bankrupt act, before the discharge could be assured.
    There is no pretense that this action was brought in Ross county, under any merely colorable device to defeat the policy of the law in respect to jurisdiction.
    The material question in the case was, and is, whether, where there are several payees named in a note, who are joint creditors and not partners, and which has not been assigned or endorsed by them in blank, or otherwise, one of them, having the notes in his possession merely for collection, with no general or special authority from his co-owners to bind them in any way, except by a receipt of the money due, can, by agreement with the principal of the notes, so change the contract as to. release the sureties, it being established that his co-creditors did not know of or assent to such change, and never in any manner ratified or affirmed it.
    It will be noted, that the suit is not brought on the notes in their alleged altered form, notwithstanding the repeated assertions of opposing counsel to the contrary, but in their original form, without the addition of the words which are alleged by the plaintiffs in error to have changed their legal tenor and effect. The petition sets out copies of the notes in three separate causes of action, in their original form, in which form they were confessedly the valid obligations of the defendants below, and then, by way of explanation, alleges that, long after the execution and delivery of the notes, one of the defendants made a memorandum at the bottom or foot of said notes, in the words, “ with eight per cent, interest after maturity.” It avers that this memorandum was not intended to alter or change the notes, or to affect their validity. It then alleges that this memorandum was so made “without the knowledge, consent, or authority of three of the plaintiffs, or either of them, and that none of these three had ever in any manner approved or affirmed the same.
    The case was not, therefore, one where the notes were materially changed, without the knowledge of the sureties, before delivery to the payee, and therefore never took effect as to such sureties, as was the case in many of the cases cited by counsel on the other side, of which Jones v. Bangs, 40 Ohio St., Warrington v. Early, 2 Ellis & Blackburn, 763, are examples.
    It is material to inquire what was the extent of the agency conferred upon Thomas Massie, and whether his alleged fraudulent act was within the scope of such agency; for if he were not authorized, either expressly or by implication, to do the alleged act, as the agent of Gertrude Massie and Judge and Mrs. Cochran, then the notes were not, as to them, altered, in the legal sense of that word. The reason of the rule that, where written instruments are altered, in the legal sense of that term, they are thereby made void, is stated in Fullerton v. Sturgis, 4 Ohio St., 429, thus: “ In such case a remedy is denied, and the instrument is destroyed, as a punishment for the fraud of a party claiming a benefit under it.” And on page 536, in the same case, Ranney, J., says: “ Fraud in the interested party lies at the foundation of the rule.” This reason does not apply to innocent parties. The public policy which aims to discourage the commission of a fraud, by subjecting the offender to the risk of losing all benefit under the instrument, ought not, and does not, go so far as to inflict such a penalty upon those who are not offenders. Neither is there any reason for inflicting such a penalty on innocent parties in order to preserve the identity of the instrument, and to prevent the substitution of another contract to which a party had not given his assent. Justice Story, in United States v. Spalding, 2 Mason, 478.
    
      Harrison, Olds & Marsh, in reply for plaintiff in erroi.
   Martin, J.

The first question for determination is raised by the demurrer to the plea to the jurisdiction. Did the court err in overruling the demurrer ?

Sec. 5031 Rev. Stat. provides that actions must be brought in the county where the defendant or one of the defendants resides or may be summoned. C. B. Thompson, the principal maker of the notes, resided and was summoned in Ross county, where the action was brought. The other defen' dants resided and were summoned in Pickaway county. The question is, was C. B. Thompson a defendant within the meaning of the above section. We readily accede to the claim that the statute contemplates a party having a substantial interest adverse to the plaintiff. And that jurisdiction cannot be conferred by a device such as naming a nominal defendant against whom no judgment could be rendered. It is insisted he was such nominal party. The plea shows that prior to the commencement of this action, proceedings m bankruptcy had been duly instituted against him, and were still pending, and that the notes sued on were provable claims, but had not been proved.

It is claimed that Sec. 5106 (Rev. Stat. U. S.) forbids the commen.cem.ent of an action against the bankrupt by a creditor of a provable claim.

The material part of that section is this:

Sec. 5106. “ No creditor whose debt is provable, shall be allowed to prosecute to final judgment any suit at law or in equity therefor, against the bankrupt, until the question of the debtor’s discharge shall have been determined; any such suit or proceedings shall, upon the application of the bankrupt, be stayed to await the determination of the court in bankruptcy on the question of the discharge.”

The inhibition of this section is against the prosecution of a suit to final judgment whilst the question of his discharge remains undetermined. If that question is finally adjudged against him, the suit may be prosecuted to judgment on its merits. It certainly was not the object of the statute to deprive creditors of the advantages, frequently important, resulting from the commencement of an action during the pendency of the proceedings in bankruptcy. The policy of this section may require restraint to the extent of preventing a useless and purely vexatious suit. In an action on the several obligations of the bankrupt, it may be requisite that the record show some special reason for the institution of the suit, or permission of the court in bankruptcy to commence it, which would imply a satisfactory reason.

Here, the claim sued on is joint, to which a joint judgment is proper, unless at the time of the judgment some of the defendants are discharged. This fact is, in our opinion, a justification for bringing the suit. And a stay of further proceedings ensures to the bankrupt all the advantages contemplated by that section.

At the commencement of the action it could not be said that judgment could not be obtained against C. B. Thompson. As principal maker and defendant he was a substantial party in interest; and it follows that the sureties were properly before the court.

The next question involves the merits of the case. Did the alteration avoid the notes as to the sureties ?

In Wallace v. Jewell, 21 Ohio St., 163, White, J., says: “It is a general rule of the law that the unauthorized material alteration of a written instrument by the holder, or with his consent, vitiates it as to non-consenting parties. The policy of the rule is to preserve the integrity of legal instruments by taking away the temptation of tampering with them.” In other well considered cases, the reason, or one of the reasons given for the rule is, that the identity of the instrument is destroyed, and as altered, it is not the obligation signed by the non-consenting party. Patterson v. McNeely, 16 Ohio St., 348; Berry v. Railway Co., 26 Id., 573 ; Harsh v. Klepper, 28 Id., 200.

In the case under consideration the alteration was by adding to the notes after delivery a stipulation for an increased rate of interest, and was confessedly material. It was made by the principal maker, and Thomas Massie, one of the joint payees, who was the custodian of the notes. But it was done without the knowledge or consent either of the sureties or the other payees. The latter claim that as to them and to the extent of their alleged equitable interest in, or proportion of the amount of the notes, the instruments are unimpaired by the alteration, and maybe enforced against the sureties. And it seems to be conceded that as to Thomas Massie and any separable interest he may have the sureties are discharged.

If this alteration had been made by a stranger, the law in this country would reject it, and enforce the notes according to their original terms. Such an alteration is regarded as a mere spoliation and parol evidence is admissible to ascertain the true terms of the contract. And thus the identity of the instrument is preserved and full effect given to it.

But the alteration in this case was not made by a stranger, but by parties to the instrument — one of whom had a beneficial interest in it.

In Williams v. Van Tuyl, 2 Ohio St., 337, the general rule is enunciated that a material alteration made by a party beneficially interested in the instrument avoids it. This rule is also announced in many adjudicated cases, and is commonly quoted and adopted in the text-books without qualification. We do not say it is of universal application. If each of these notes had specified the aliquot shares of the payees respectively, the question might possibly be somewhat varied.

In this case, however, the instrument is a promissory note in common form. The promise is to the payees jointly. They had each the right to its custody, to receive its amount and to release the debt. And whether the alteration under consideration is to be regarded as a mere spoliation, depends on the question as to whether it may consistently with legal principles be rejected and the identity of the original obligation preserved. If this cannot be done the case falls within the rule of material alteration, supported by the policy and reasons already indicated. As between the maker and payee, who made the alteration, it was an effective act. And the sureties it is clear were not bound by it. It cannot be rescinded and the parties to it restored to their original rights against the sureties. Brandt on Suretyship, 331. We cannot therefore regard it as a mere spoliation. On the contrary it is a material change in the terms of the contract made without the assent of the sureties. And being effective and beyond recall, the sureties may well say the notes thus altered they did not sign. It will be borne in mind that the judgment was in favor of the sureties against Thomas Massie, thus recognizing the effectiveness of the alteration. It was against the sureties and in favor of the other payees for an alleged equitable portion of the debt. It seems to us that to affirm this judgment would be equivalent to declaring good in law a petition against the sureties by a part only of the payees, founded solely on the hardship inflicted on them by the act of their co-payee, and in which the sureties had no participation. Indeed the claim is made in argument that in equity the proportionate shares of the debt should ■ be adjudged against the sureties. This claim is inconsistent with a surviving legal obligation in the notes. As against sureties there is no consideration to fall back upon in lieu of the original formal undertaking. And they pi ay stand strictly on its terms.

In State v. Medary, 17 Ohio, 565, it is said by Judge Read, “ There is no construction, no equity against sureties. If the bond cannot have effect according to its exact words, the law does not' authorize the court to give it effect in some other way.”

This view renders unnecessary any comment on the other errors assigned.

Judgment reversed.