Court Opinion

ID: 6906955
Source: CourtListenerOpinion
Date Created: 2022-07-23 22:02:01.946025+00
Date Added: 2024-06-11T16:06:23.273008
License: Public Domain

BENNETT, J.
(Concurring in Result). — I concur in the result reached by Mr. Justice Johns in his opinion that this cause must be reversed.
There is absolutely no allegation in the complaint that the paper was made payable to order, or to bearer, or was negotiable in any way. Neither is there any allegation that the transfer by the defendant to the plaintiff was by indorsement on the back of the note. For all that appears, it may have been transferred -by a separate and distinct paper, in which event it would not be a transfer within the negotiable instruments law. Therefore, it is clear that in the condition of the pleadings the judgment on the demurrer to the answer cannot stand.
But I cannot concur in what is said in the opinion as to the construction of Section 5898, L. O. L., or in the conclusion reached that the implied warranty mentioned in that section, applies when the indorsee has full knowledge of the entire facts, and agrees, either expressly or impliedly, that he will take his chances on “the defective title.
*497In my judgment, such a construction was never contemplated by the legislative mind, and will work a gross fraud and injustice, not only in this case (if it shall turn out that there was such an understanding), but in a multitude of other cases where paper of this kind is transferred on speculation with full knowledge of the facts, and with the agreement and understanding- that there is no warranty, and that the purchaser takes his chances. Such a construction of the section malíes the law a pernicious trap to catch even the wary — to say nothing- of the unwary.
No business man would suppose that by simply assigning a note and putting his name under the words “without recourse,” he was signing a written cantract for recourse, and a written contract which would absolutely shut him out from showing what was the real understanding and agreement. Such a construction puts the purchaser in bad faith and with full notice, upon exactly the same plane with the purchaser in good faith and in due course without notice —a proposition which is abhorrent to the whole spirit of the Negotiable Instruments Act.
An indorsement “without recourse” was never considered such a written contract, and. the implied warranties thereunder were always subject to parol evidence of the real agreement of the parties at common law and by the law-merchant.
“The implied warranty is necessarily founded in good faith, and it will not attach except where the party relying upon such warranty has acted in good faith”: 8 C. J., p. 393, § 579.
To same effect see Id., § 578.
“The contract of sale or transfer * * may be made in such form, or under such circumstances as to exclude the warranty of genuineness, which would *498be otherwise implied by law. This has been held by repeated decisions”: Id. § 579.
Warranty in the sale of commercial paper runs only ito the holder in due course: Bruck v. Lambeck, 63 Misc. Rep. 117, (118 N. Y. Supp. 494); James v. Yeager, 86 Cal. 184 (24 Pac. 1005).
Knowledge of the facts rebuts warranty: Moore v. Worthington, 63 Ky. (2 Duv.) 307.
If at the time of sale the seller expressly refuses to warrant, there is no warranty: Gilfert v. West, 37 Wis. 115; Bell v. Dagg, 60 N. Y. 528.
In Strange v. Ellison, 2 Bailey (S. C.), 385, it is said:
The seller of a promissory note warrants “that the indorsements are genuine, unless it appears that the transferee took it without reference to that security, or had agreed to run the risk of the indorsement being not genuine.
“But, notwithstanding the general principle, it is equally certain that the contract of sale or transfer * # may be made * * under such circumstances as to exclude the warranty of genuineness, which would otherwise be implied by law”: Straus v. Hensey, 7 App. D. C. 289.
“It seems to me it would be absurd to hold that on the sale of property any fact affecting its title, quality, or validity, which is distinctly disclosed and known to the purchaser, can be said to be warranted by implication not to exist”: Davis, Judge, in Curtis v. Brooks, 37 Barb. (N. Y.) 479.
In 24 R. C. L., Section 455, it is said:
“A warranty of title is annexed by law to a sale of personalty only where there is nothing in the circumstances of the case to rebut that presumption.”
This question was carefully considered by the Supreme Court of New York in Bank v. Gallaudet, 120 *499N. Y. 298, 308 (24 N. E. 994, 996), in which the court said:
"The question as to whether there was an implied warranty depends upon the facts as to whether the defendant was an agent and disclosed his agency to the plaintiff, or whether that fact was known and understood1 by its officers in making the purchase.”
And the cases of Wilder v. Cowles, 100 Mass. 487, and Worthington v. Cowles, 112 Mass. 30, are to the same effect.
There certainly was no written contract attached to such an indorsement in this state, independent of the statute, for the careful and deliberate decision of this court, formulated by one of the most eminent and learned of its judges, concurred in by a unanimous court, is to the contrary; and is in entire harmony with the general rule as shown by the authorities just quoted.
In Carroll v. Nodine, 41 Or. 412 (69 Pac. 51, 93 Am. St. Rep. 743), Mr. Justice Wolverton said:
""Where the transfer is by -indorsement without recourse, or by delivery, the vendor’s liabilities arise from the fact or contract of sale, and not upon the paper. * * Where an article of personalty in the vendor’s possession is sold and delivered to another, and nothing is said, there goes along with the contract an implied warranty of title, and a failure thereof renders the vendor liable. The implied warranty attending the sale of commercial paper arises upon like principle. * * But we have seen that such an indorsement does not constitute a contract in writing, and serves merely to transfer title, as in the case of delivery when payable to bearer. ’ ’
It is urged that the above decision was rendered as to paper, dated prior to the passage of the negotiable instruments law, and that, although it was rendered *500three and one-half years after the passage of that act, yet that it had reference to the law as it was before, and not after, the act.
Granted that this is so; what words shall we point to in Section 5898, or anywhere in the body of the act, upon which we can predicate a decision, that the act made the implied contract a contract in writing, where by the law-merchant and by our own solemn decision •there had been no contract in writing before. Where is the word or words that will bear that construction? I find none. Certainly the law does not say that the contract which it implies shall be a written contract. On the contrary, it is entirely silent in that regard, and leaves the contract to be implied from the transaction and not from any written words; just as it was implied from the transaction and not from any written words by the law-merchant, as declared by the authorities generally and by our own solemn decision. Not only is there no word in the statute saying that the contract shall be in writing, or treated as in writing, but all the terms of the act, when taken together, show that this was not the intention.
Section 5871, L. O. L., provides:
“A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument.”
Is it not perfectly clear that this language puts the indorser without recourse, in exactly the same position as one who assigns by delivery, or orally, or by a separate written .assignment upon another paper?
Again, how can we say that the statute makes a distinction between the warranty by mere delivery, and the warranty by indorsement without recourse, when the statute actually couples them in the same phrase, and makes exactly the same warranty apply to both.
*501Every person negotiating an instrument “by delivery or by a qualified indorsement,” warrants, etc.
Whether or not Judge Wolverton, in writing the opinion in Carroll v. Nodine, 41 Or. 412 (69 Pac. 51, 93 Am. St. Rep. 743), had this statute in mind, and recognized it as declaring the law-merchant as it had previously existed, is it not plain that his language is just as applicable as though he had the statute before him and recognized the warranty of the indorser without recourse as just the same, and to be coupled with the warranty by delivery, just as the statute couples them?
It follows that the statute of frauds does not enter into this case at all, because there was no written contract, in so far as a warranty was concerned, and the warranty mentioned by the statute is an implied warranty only, which exists without regard to the indorsement, from a mere sale and delivery of the note.
There is no reason, then, why this implied warranty froten a mere sale of the article may not be changed or limited or abrogated by a parol agreement, either expressed or implied, just as fully and to the same effect that it could be done by a formal written agreement: Carroll v. Nodine, 41 Or. 412 (69 Pac. 51, 93 Am. St. Rep. 743).
The warranty of the seller of a negotiable promissory note, who transfers the same by delivery or indorsement without recourse, is identical with the warranty of the vendor of any other kind of property, who, primarily, in all cases warrants the title to the same; but this warranty may always be overcome by direct or circumstantial evidence tending to show that there was in fact no warranty, but that the buyer took the title with knowledge and at his own risk.
In a note to 62 Am. Dec., p. 463, it is said:
*502“In America the authorities are uniform to the point that on a sale of chattels * * there is always an implied warranty of title, unless the circumstances are such as to show that the vendor was not selling as owner* * or that the purchaser was to take the risk of the title.”