Case ID: ohio-st_3/html/0302-01.html
Source: Caselaw Access Project
Author: {"author": "* Bartley, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

*John Selser, Executor or Samuel Briggs, deceased, v. Evan Brock.
    Usury, in this state, will not vitiate the entire contract on the part of a surety on a promissory note, hut only render the note voidable to the extent of the illegal consideration.
    Where a joint and several promissory note in blank is signed by several persons as sureties, and delivered to the principal debtor, to be by him filled up and given to the payee, if an illegal rate of interest be agreed upon between the principal debtor and the creditor, and incorporated in the amount for which the note is made payable, the contract is voidable to the extent of the usury only, and creates a binding obligation on the part of the surety for the principal and legal interest, whether the usury be inserted with the knowledge and consent of the surety or not.
    If, with the knowledge or assent of the creditor, any material part of the transaction between the creditor and the principal debtor be misrepresented to the surety, the misrepresentation being such, that, but for the same having taken place, the suretyship would not have been entered into, the security so given is voidable at law, on the ground of fraud. .
    But where a fraud is practiced by a principal debtor in procuring a surety to sign a note without the knowledge of the creditor, the obligation of the . surety is valid and binding.
    A surety, in signing his name to a promissory note below or after the names of other persons have been placed on the note as co-sureties, although he does not thereby warrant, does, in effect, affirm the genuineness of the previous signatures, and can not avoid his liability to the payee, by showing that th'ey had been forged to the note by the principal, but of which the creditor had no notice.
    Where one of two innocent persons must suffer by the fraud of a third person, he who first trusted such third person, and placed in his hands the means which enabled him to commit the wrong, must bear the loss.
    Petition in error to reverse the judgment of the district court of Clark county.
    The original action was assumpsit on a promissory note, as follows:
    “$1,100. March 6, 1850.
    “ Twelve months after date, we, or either of us, promise to pay Evan Brock, or order’, eleven hundred dollars, for value received.
    “ Martin L. Car,
    “ Daniel Hornet, Sr. “Joseph Thomas,
    “ William Anderson,
    “ Samuel Briggs.”
    303] *The plea was the general issue, verified by affidavit. On the trial in the district court before a jury, the plaintiff, to maintain the issue on his part, gave in evidence, among other testimony, the note above mentioned. And the defendant, on his part, among other things, gave evidence tending to prove that Martin L. Car was the principal' on said note, and Samuel Briggs, if a party to the same at all, was only surety; that his name was affixed to it when the note was in blank, and after the names of the other persons appearing on the note had been placed there; that the body of the note, leaving the amount in blank, was written by one James Edwards at the instance of the plaintiff and said Car, and in the absence of all the other persons whose names appear on the note. The defendant also gave evidence tending to prove that the signatures, purporting to be those of William Anderson and Daniel Horney, Sen., on,said note, were not genuine. And the plaintiff, in rebutting, gave evidence tending to prove that prior to the note being written íd blank, ho and said Car had settled, and that on the settlement Car had been found to be indebted to the plaintiff in an amount exceeding one thousand ‘dollars; and that plaintiff proposed to give Car a credit of one year for one thousand dollars, with ten per cent, interest on his paying the balance, and giving a note, with security, for that amount; that Car accepted the propusition, paid the balance, and the note being drawn'in blank, and the names affixed to it, was• subsequently filled by “ eleven hundred dollars” being inserted, making the amount of one thousand dollars, with ten per cent, interest thereon for one year ; Briggs not being present at the time of the agreement between the plaintiff and Car at the filling up of the note. And there was no evidence given tending to show that Briggs had assented to the agreement, or the filling up of the note, other than that of his signature appearing on the note.
    During the progress of the trial the defendant asked the court to charge the jury that if they found, from the evidence, that Briggs signed his name to said note, as surety for Car, *prior [304 1 o the date thereof, and while the same was in blank and that without the assent of said Briggs, Car and the plaintiff agreed to cause said note in blank to be filled up for a loan, or credit of one thousand dollars, at a greater rate of interest than six per centum per annum, and that the same was accordingly so filled up, that the defendant was not liable on the note, and that their verdict should be for the defendant. The court refused to give the charge requested ; but on the contrary,-instructed the jury that if they found the facts as claimed, the plaintiff’s right of recovery would be limited to one thousand dollars, and six per cent, interest thereon.
    The defendant further asked the court to instruct the jury that if they found that Briggs signed the note in blank as surety only, and after the names of Horney and Anderson had been written thereon, and on the faith and understanding that the names of said persons on said note were their genuine signatures; and should further find that Brock knew Briggs to be surety only at the time he received the note ; and also find that the signatures of Horney and Anderson had been forged upon the note, that in such case the defendant would not be liable, and that the verdict should be in his favor. The court also refused this charge, as requested; but on the contrary, instructed the jury that the note being several as well as joint, if Briggs was only surety, and Brock knew the fact, and the names of Hoimey and Anderson were forged on the note, it would afford no defense to Briggs, unless notice of such forgery were traced to Brock at or before the filling up of the note.
    To this ruling and these instructions of the court to the jury, and the refusal of the court to charge the jury as requested, the defendant, by his counsel, excepted. And upon the ground presented by the bill of exceptions, this petition in error has been filed.
    
      Harrison & Rush, for plaintiff in error
    
      White, for defendant in error.
   * Bartley, J.

The questions for determination in this case, arise upon the exceptions to the charge of the court to the jury, and are as follows

1. Whether the liability of Briggs, on the note, was defeated by the agreement of Car and Brock, incorporating an illegal amount, of interest in the amount for which the note was made payable?

2. Whether the liability of Briggs to Brock could be invalidated by showing a fraud on the part of Car, in forging the signatures of Horney and Anderson on the note, of which it does not appear that Brock had any knowledge at the time he received the note?

Of these in their order.

I. The effect of usury in this state, according to the course of adjudication for many years, is not to vitiate the entire contract, but only to the extent of the usury. The consideration maybe inquired into for the purpose of showing illegal interest and avoiding the agreement to this extent, but no further. And where usury is shown, a recovery may still be had upon a contract for the principal and six per cent, interest. Lafayette Benefit Society v. Lewis, 7 Ohio, 80. Rains et al. v. Scott, 13 Ohio, 107. The obligation of Briggs being that of a surety, was accessory to the obligation of his principal. And usury will not avoid a contract as to a surety beyond the extent to which it is vitiated as to the principal.

It is claimed, on behalf of the plaintiff in error, that as the note was signed in blank, and Briggs a mere surety, whose liability could not be extended by implication, par, in filling up the note with an amount which included illegal interest, exceeded his authority, and thereby discharged the liability of Briggs. The fact that the note was signed in blank, and filled up afterward, could not affect the liability of Briggs. Car had agreed to give Brock a note with security for one thousand dollars, at ten per cent, interest on a year’s credit. The note having been signed in blank, was delivered to Car, to be filled up without any special restrictions as 306] to the terms or amount. Briggs thus reposed full Confidence in and gave ample authority to Car to fill up the note, and when filled up, it became obligatory upon him to the same extent it would have been if filled up before it was subscribed. But having been given before the enactment of the statute of 1850, fixing the con • ventional rate of interest at ten per cent., the stipulation for the excess of interest over six per cent, was void, and the legal effect of the instrument was to create an obligation for the payment of the one thousand dollars with six per cent, interest. Whatever Car may have attempted to do, whether within the scope of his authority or not, he did not, in reality, create any legal obligation beyond the extent of the principal with the legal rate of interest. Car had the capacity to make the contract, and the authority to fill Up the note; and if he exceeded his authority by stipulating for an illegal rate of interest, his act, to the extent of the usury, was void, and to this extent created no obligation, and could be avoided pro tanto, by'either himself or Briggs, by showing the fact, on any attempt to enforce the collection of the note.

In the case of Violet v. Patton, 5 Cranch, 151, Chief Justice Marshall said : 11 That the objection that the indorsement preceded the making of the note, comes with a very bad grace from the mouth of the indorser. He indorsed the paper with the intent that a promissory note should be written on the other side, and that he should be considered a$ the indorser of that note. It was the shape he intended to give the transaction ; and he is now concluded from saying or proving that it was not filled up when he indorsed it.”

The plaintiff in error refers us to the case of The Bank of Chillicothe v. Swayne et al., 8 Ohio, 286, and also the case of The Preble county Bank v. Russell, 1 Ohio St. 320. The principle settled in those cases has no application here. In each of those cases the contract was declared void, not because of any illegal element or stipulation entering into the consideration of the instrument, but for want of legal capacity on the part of a corporation to make a contract in derogation of the authority conferred by its charter, being the law of its creation.

*II. Could the liability of Briggs be affected by showing a [307 fraud on the part of Car in forging the names of Horney and Anderson to the note ?

If there was any participation in the fraud on the part of Brock, the creditor', in relation to the obligation of the surety, or if the fraud was perpetrated by the principal debtor, with the knowledge or assent of Brock, the liability of the surety would clearly be discharged. In the case of Stone v. Compton, 5 Bing. (N. C.) 152, Tindal, chief justice, said: “ The principle to be drawn from the cases, we take to be this, that if, with the knowledge or assent of the creditor, any material part of the transaction between the creditor and his debtor is misrepresented to the surety, the misrepresentation being such that, but for the same having taken place, either the suretyship would not have been entered into at all, or, being entered into*, the extent of the surety’s liability might be thereby increased, the security so given is voidable at law on the ground of fraud.” The same doctrine is recognized in the case of Graves et al. v. Tucker, 10 Smedes & Marshall, 22.

In the case before us, the charge of the court was, that although Brock knew the relation of Briggs to be that of surety, yet that the fraud would afford no defense to Briggs, unless notice of the forgery were traced to Brock at or before the filling up of the note. We do not perceive any error in this instruction to the'jury. Briggs, by subscribing his name to the note in blank, gave credit to Car, and authorized any person who might legally become the holder of the instrument, to trust Car, on his accountability, to any amount for which Car had authority to fill up the note. Briggs, by reposing this confidence in Car, and delivering to him the note with his name to it, placed it in the power of Car to procure credit with other persons on the faith of his (Briggs’) liability. In the case of Russell v. Langstaff, Douglass, 516, Lord Mansfield said: “ The indorsement on a blank note is a letter of credit for an indefinite sum; and that it does not lie in the mouth of the indorser to say 308] that the ^indorsement was irregular.” It was incumbent on Briggs, when he placed his name to the note, to ascertain and know whether those whose names appeared on the note as his’co-sureties had signed the note and become legally bound. And by signing his name on the instrument, after the names alleged to have been forged, although he did not thereby warrant, yet he did distinctly sanction and affirm the genuineness of the previous signatures. If, therefore, a fraud were practiced on Briggs, to which Brock was not a party, and of which he had no knowledge at the time, but perpetrated by a person in whom Briggs had reposed special confidence, and to whom he had given the credit of his name, it was his misfortune, not Brock’s fault. It appears to be well settled, both by reason and by authority, that where one of two innocent persons must suffer by the fraud of a third person, he who trusted the third person, and placed the means in his hands to commit the wrong, must bear the loss. Lickbarrow v. Mason, 2 Term, 70; Lane v. Borland, 2 Shepley, 77; Root v. French, 13 Wend. 572. The wrong here was one which Briggs’ vigilant regard for his own interest and safety could and should have avoided. In the case of the Bank of St. Clairsville v. Smith et al., 5 Ohio, 222, the Supreme Court of this state held that when a loss must'be sustained by one of two persons, through the fault of a third party, in passing negotiable paper, he who reposed the first confidence must bear the ultimate loss.

The relation between a surety and the holder of a promissory • note is, in many respects, similar to that which exists between the indorser and the holder; and we learn from Story on Promissory Notes, 153, that the. obligations which exist between the indorser and every subsequent holder of a promissory note, is similar to that which exists between the drawer and the payee of a bill of exchange. And one of the consequences of the doctrine that a negotiable instrument, after indorsement, will pass by mere delivery, is, that if it should, after indorsement, be lost or stolen, or fraudulently misapplied, any person who should subsequently *be- [309 come the holder of it, bona fide, for a valuable consideration, without notice, would be entitled to recover the amount thereof, and hold the same against the rights of the owner, at the time of the loss or theft. This arises from the peculiar rights and obligations of negotiable paper, and the nature of the functions which it performs in commercial transactions. There is, therefore, great justice and propriety in the rule, that the payee or indorsee of negotiable paper takes it free from any of the conflicting equities existing between the several makers or obligors, of which he had no notice.

Petition dismissed, and the judgment of the district court affirmed.