Case Name: Clark A. Sackett et al. v. Jacob Kellar
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1872-12
Citations: 22 Ohio St. 554
Docket Number: 
Parties: Clark A. Sackett et al. v. Jacob Kellar.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 22
Pages: 554–562

Head Matter:
Clark A. Sackett et al. v. Jacob Kellar.
1. The purchaser of a promissory note without indorsement or other-guaranty of payment, but with notice that it was given for a patent, right, is not thereby, as a matter of law, charged with notice that it. was obtained by fraud or without consideration.
2. The holder of negotiable promissory notes, purchased before maturity, and for value, but with notice that they had been obtained from the-maker by fraud and without consideration, can not, byway of estoppel, prevent the maker from setting up such defenses as against him, by showing that the maker, before the purchase, had informed him that-the notes were all right, and would be paid at maturity, if it appear-that, at the time such declarations were made, the maker was ignorant, of such fraud and want of consideration, and that the holder at the-time believed him ignorant thereof, unless he also show that he-informed the maker of the facts which had previously come to his-knowledge affecting the validity of the notes.
Error to the District Court of Summit county.
The original action was brought in the Court of Common Pleas of Summit county, by Jacob Kellar, defendant in error, against Clark A. Sackett aud others, plaintiffs in error, upon certain promissory notes made by Sackett to T. T. Kendrick or bearer, and upon a mortgage given by Sackett and wife to secure the payment of these notes and others made at the same time. The plaintiff alleged in his-petition that Kendrick had transferred the notes and mortgage to one Moore, before maturity, for a valuable consider ation, and in the usual course of business, and that Moore had afterward transferred the same in like manner to the plaintiff. The other parties were made defendants, as claiming some intei’est in the mortgaged premises.
The defendant Sackett, in his answer, claimed that Kendrick had obtained the notes and mortgage from him without consideration and by fraud1; that the only consideration therefor was the pretended sale of a patent right for an improvement in a bedstead; that Kendrick falsely represented himself to be the owner thereof, and that it was of great utility and value, while in truth he was not the owner, nor was the same of any value ; that defendant, relying upon these representations, had been deceived thereby. And he also alleged that said Moore had notice of the fraud and want of consideration at the time the notes were transferred to him by Kendrick, and that plaintiff had like notice at the time he received the notes from Moore.
The plaintiff in reply denied the allegations of fraud and want of consideration, and also denied that either said Moore or himself had any knowledge of such fraud or want of consideration at the time the notes and mortgage were transferred to them respectively. And he alleged that the notes had been sold and transferred by Kendrick to Moore, and afterward by Moore to himself, for a valuable consideration and before maturity, and without notice of any defense thereto. And, by way of estoppel, the plaintiff further alleged in the reply, that immediately before he purchased the notes and mortgage from Moore, and during negotiations therefor, he informed the defendant that he was about to purchase the same, and inquired of him if they were all right and would be paid at maturity; and that the defendant then informed the plaintiff that they were all right and would be paid at maturity; and that said defendant then and there expressed a desire that plaintiff would purchase the same ; and he further alleges that he was induced by said representations and declarations of the defendant to purchase the notes, and did so purchase them.
On the second trial of the case to a jury, testimony was •offered by the defendant tending to prove the allegations of the answer; and testimony was offered by the plaintiffs tending to disprove the defendant’s allegations and also to prove the allegations of the reply ; and thereupon the defendant offered further testimony, tending to prove that at the time he informed the plaintiff that the notes were all right, and would be paid at maturity, he (the defendant) had no knowledge of the fact that said notes were without •consideration, or of the fact that the representations of Kendrick were false and fraudulent, or of the fact that said patented improvement was valueless; and tending to prove that the plaintiff not only had such knowledge, but also had reason to suppose at the time that defendant was ignorant of said want of consideration and fraud.
Also, on the trial, the defendant requested the court to give certain instructions to the jury, which the court refused, and defendant excepted; and he also excepted to certain instructions which the court gave to the jury. A verdict was returned for the plaintiff, which the defendant moved the court to set aside, on the ground of misdirection to the jury, and for error in refusing to charge as requested. This motion was overruled, and defendant excepted and filed his bill of exceptions, setting out the facts which the testimony tended to prove, and so much of the charge as given, and the instructions refused as were excepted to. Judgment was thou rendered on the verdict.
On proceedings in error, the District Court affirmed the judgment of the Common Pleas, and this action was brought to reverse the judgment of affirmance and also the original judgment.
F. E. Hutchins, for plaintiff in error :
1. If the purchaser of promissory notes at the time of the purchase has notice of such facts as would, in the case •of a reasonably prudent man, put him upon guard, suggest inquiry, make him suspect that all was not right, he takes the notes subject to all the defenses which might be made against them in the hands of the original payee. In view of the worthlessness of a large majority of patented inventions, and the notoriously fraudulent character of most of the sales of patent rights, knowledge that the notes were given for a patent right is sufficient to put the purchaser on inquiry. At all events it is evidence tending to establish such notice, and the court below should have-so submitted it to the jury.
2. But Kellar not only knew that the notes for so large-a sum as $9,000 were given for a patent right, but he exchanged for them his residence with an express agreement that he would take the notes at his own risk, both parties-knowing that the maker was perfectly good. This was not a purchase “ in the usual course of business.”
3. The declaration of Sackett to Kellar that “ the notes-were all right and would be paid,” under the circumstances-of this case, did not estop him from setting up the defense-presented in the court below. Kellar did not believe the, declaration, and did not act because of any such belief. Estoppelsin pais operate only in cases where, in good conscience and honest dealing, the party ought not to gainsay his admission. 7 Ohio St. 99, 105; 2 Smith’s Lead. Cases, 743, 767, 768; Dazell v. Odell, 3 Hill, 219-227; Commonwealth v. Naulty, 10 Barr, 527-531: Miller v. Cresson, 5'M. & S. 284; Brown v. Wheeler, 17 Conn. 345, 353; Roe v. Jerome, 18 Conn. 138; Dyer v. Cady, 20 Conn. 563; Taylor v. Ely, 25 Conn. 250, 258; 3 Washb. Real Prop. 72. And Beardsley v. Foot, 14 Ohio St. 414, rightly considered, supports the same view. See page 416. See also Cambridge Savings Inst. v. Littlefield, 6 Cush. 210, 214; Lawrence v. Brown, 1 Seld. 394, 401; Carpenter v. Stillwell, 1 Kern. 61; Copeland v. Copeland, 28 Maine, 529; Forsyth v. Day, 46 Maine, 176, 194; Morton’s Adm'r v. Hodgdon, 32 Maine, 127, 129; Darlington’s Appropriation, 1 Harris (Penn.), 430, 432; 1 Phillips’ Ev. 455 (note 129, 4 Am. ed.), referring to 1 Camp. 245; Eldred v. Hazlett's Adm’r, 33 Penn. St. 307, 316; Jewett v. Miller, 10 N. Y. (6 Seld.) 402, 406. Kellar should have told Sackett of the facts known to him affecting the validity of the notes. His .silence estops him from setting up the estoppel against Saekett. 3 Washb. Real Prop. 68. And the burden was upon him (Kellar) to prove the existence of all the elements necessary to create an estoppel.
Estep Burke, and McKinney &¡ Tibbals, for defendant in error :
1. A patent right, prima facie, imports value. The house and lot exchanged for the notes was worth the sum which the notes promised to pay. And Kellar stands in court an innocent holder of negotiable paper bought by him before maturity for full value.
2. Even if Kellar was “put upon inquiry,” he was simply bound to inquire; he was not bound to instruct the maker of the notes. It was enough that he called upon the maker, in good faith, to ascertain whether any defense existed, or would be made, against them. 11 Ind. 1; 16 Ib. 37, 284, 344; 25 Conn. 118; 12 E. D. Smith, 30; 28 Ala. 321; 30 Ib. 160; 46 Maine, 176; 13 Wis. 594; 14 Ib. 281; 1 Blackf. 248; 6 Ib. 175; 1 Ind. 230; 8 Ib. 501; 21 Wend. 94, 172; 19 Ib. 557; 38 Ala. 57; 38 Ill. 230; 20 Wis. 282.

Opinion:
McIlvaine, J.
No question arises in this case under the •special legislation of this state in relation to the sale of patent rights, the notes in controversy having been executed prior to May 5, 1868.
The first instruction requested by the defendant below, and refused by the court, was, in substance, that knowledge on the part of the plaintiff, before he purchased the notes sued on, that they had been given for a patent right for an improvement in a bedstead, though he did not know that the alleged improvement was in fact worthless, was •sufficient to put him on inquiry as to the validity of the notes as between the original parties. There was no error in refusing this instructio n. Letters patent are issued by authority of law to inventors and discoverers of new and useful inventions and improvements only. A valuable property is thereby intended to be secured to the patentee, and no presumption, either of law or of fact, arises that the subject of the patent is not new and useful, or that fraud was employed in procuring the letters patent, or in vending the rights secured thereby.
The second instruction requested and refused, in addition to the knowledge stated in the first, assumed that the plaintiff had further notice that the amount agreed to be paid by the defendant for the patent right was large, to wit, $9,000, and that the holder from whom he.was about to purchase the notes would not indorse or otherwise guarantee their payment. This instruction was also properly refused. The notes were payable to " bearer," and were therefore transferable by delivery only. No just suspicion, much less presumption, of fraud or want of consideration could arise from the form of the notes, or from the fact that the holder proposed to transfer them without indorsement. And as to the knowledge of the plaintiff below in regard to the amount agreed to be paid by the defendant for the patent right, it is enough to say, that, as matter of law, he was not thereby charged with notice that the sale was tainted with fraud. Indeed, the value of such property is so essentially a matter of mere opinion, that it would be difficult to say, in any particular case, what weight, if any, proof of such knowledge should have, if unconnected with other suspicious facts or circumstances.
The next instruction requested and refused, and the instruction given in lieu thereof, are thus stated in the record:
"8. Said defendant also asked the court to charge the jury that if they found that these notes were without consideration, and were procured from the maker by the fraud and fraudulent misrepresentations of said payee, Kendrick, and the plaintiff, having notice of, or believing these facts, went immediately, before purchasing them, to Sackett, tho maker, and informed him that he was about purchasing said notes, and inquired of him if they were all right and would be paid, and said Sackett then, in good faith and in ignorance of said want of consideration and fraud, informed him that they were all right and would be paid, yet still this would not entitle the plaintiff to recover on the said' notes unless he called Sackett's attention to the supposed, facts or defects, if he supposed him ignorant thereof;. which charge the court refused to give, but did charge the jury upon this subject that if the notes were without con- • sideration and procured from the maker by the fraud and fraudulent misrepresentations of said Kendrick, and the-plaintiff having such information or notice of their want of consideration and fraud as put him upon inquirjr touching* the consideration and means by which said notes were procured, that it would be the duty of the plaintiff before purchasing the notes to inquire of* the defendant, or otherwise-obtain information in respect to the consideration of said notes, or other means by which they were obtained, before-purchasing them; but that, if he called upon said defendant immediately before purchasing said notes and made inquiry of him in respect to their validity, and informed him that he was about to purchase them, and desired to know if they were all right, and that in answer he was informed by said defendant that said notes were all right,, that he would pay them when due, that he hoped the plaintiff would buy them; or if the defendant, by the use of any other words, said to the plaintiff substantially that he could safely buy said notes, then the plaintiff could safely buy said notes without further inquiry or information to Sackctt, unless he made such inquiry for the purpose of entrapping or overreaching the defendant, in which case, he could not recover by reason of the declaration'of said Sackett."
In the first place, we must determine the meaning of the-following language contained in this request, to wit, "the plaintiff having notice of, or believing these facts." If this> language simply signifies that the plaintiff had formed an opinion, based upon some unascertained theory, that the patented improvement, for which the notes were given, was not novel or useful, and that, therefore, the representation made by Kendrick to the contrary was false and fraudulent,, then, we think, the instruction was properly refused. We are of opinion, however, that this language naturally and> necessarily imports that the plaintiff had knowledge of such material facts in relation to the sale of the pateut right, as would reasonably induce the belief, and did, in fact, induce him to believe, that the notes had been obtained from the defendant by fraud and without consideration. And, this being the meaning of the phrase, the defendant was entitled to have the instruction given to the jury as requested, or in some other form equivalent thereto.
It is undoubtedly true, that a holder of negotiable notes purchased before maturity, and for value, but with knowledge of defenses as against prior holders, may, nevertheless, show facts, which, in equity and good conscience, estop the maker from setting up such defenses as against him, as, for instance, where, before purchase, he communicated to the maker all the information affecting the validity of the notes, that had come to his knowledge, and the maker thus informed, assured him-that the notes were all right, and would be paid at maturity. In such case, the party would have a right to rely upon such declarations, and if, on the faith thereof, he purchased the notes, the maker would not be permitted to set up such defenses as against him. But the facts assumed in this request were, that the notes sued on had been obtained from the defendant by fraud and without consideration ; that the plaintiff had knowledge of these facts; that the defendant was ignorant thereof, and that the plaintiff believed him to be so ignorant. Under these circumstances, the plaintiff, without communicating his knowledge concerning the invalidity of the notes, inquired of the defendant, whether they were all right and would be paid at maturity ; and having received an answer in the affirmative he purchased them, and now relies upon the declarations of the defendant, so obtained, as an equitable estoppel against such defenses.
The question thus presented for our determination is this: Had the plaintiff a right to rely and act upon the statements of the defendant thus procured to be made? We think not. It was his plain duty, under the circumstances, to inform the defendant of the facts affecting the validity of the notes which had come to his knowledge, before purchasing them. Eair dealing required this, and the withholding of such information, under such state of facts, was, in law and in good conscience, a fraudulent suppression of the truth, and the plaintiff took the notes subject to all their infirmities, which had come to his knowledge.
In lieu of the instructions asked for, the court, in substance, instructed the jury, that the promises or declarations obtained by the plaintiff from the defendant upon inquiry as to the notes, could not be set up by way of estoppel, if the inquiry was made for the purpose of entrapping or overreaching him. No fault can be found with this instruction. But beyond this, the defendant had a right to have the court say to the jury, that the facts assumed in the request, if found by the jury, should, as a matter of law, be regarded by them as sufficient proof of a purpose to entrap and overreach him. This the court refused to say, aud in refusing, we think it erred.
As to the refusal to give the fourth instruction requested, it is only necessary to add to what has already been said, that the true test for determining whether the plaintiff had a right to act upon the declarations made by the defendant touching the validity of the notes, does not depend upon the impressions left upon his mind as to the truth or falsity of his previous information, but upon the fact whether or not such declarations were obtained under circumstances consistent with honesty and good faith.
For error in refusing to instruct the jury as prayed for in the third request, the judgment is reversed.