Court Opinion

ID: 8756197
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:47:28.041503+00
Date Added: 2024-06-11T17:01:16.252552
License: Public Domain

HOOK, Circuit Judge
(dissenting). The facts in this case— some admitted, and the others established by the overwhelming weight of the evidence — are as follows: Through the will of her father and a deed from a co-devisee, Annie H. Neely became the owner of a tract of land, subject to a mortgage given by the testator in his lifetime, and to two annuities which he bequeathed. The mortgage was the prior lien. Mrs. Neely was an executrix of the will. Richard M. Neely, an appellee herein, is her son. Acting as the agent of his mother, he made a contract .with Williams for the sale of the land for $6,000, $500 of which was paid at the time, $2,000 was to be paid when the sale was consummated, and the remaining $3,500 was to be evidenced by a note secured by a mortgage upon the property. There is no pretense that he practiced any deception upon Williams; that he made any covenant against incumbrances, or personally obligated himself in any way or to any degree whatsoever. He was professedly acting for his mother in the making of the contract of sale and Williams so understood it. The existence of the mortgage and the annuities were equally apparent from the public records. The contract of sale was susceptible of exact performance. It could have been fully carried out, and all of the liens against the land could have been discharged. Between four and five months afterwards the sale was consummated. Williams received a deed from Mrs. Neely containing covenants of warranty and against incumbrances. He paid the $2,000, and executed his note and mortgage for the remaining $3,500. But Richard M. Neely was not present at the time. He prepared none of the instruments, and did not in any manner participate in the closing of the transaction. For some reason not disclosed in the record Williams did not require the release or satisfaction of the annuities when he took the deed, paid the money, and gave his note and mortgage. Whether this arose from mistake of fact or of law does not clearly appear, but there is not even the slightest ground for attributing it to Richard M. Neely. He was not there, and was wholly innocent in fact and intent. The note and mortgage for the balance of the purchase price were made by Williams direct to Richard M. Neely, instead of to his mother, for the reason that he paid to her and for her benefit the full sum of $3,500 for such securities. Nearly $2,500 of this amount was applied by Mrs. Neely’s agent, who attended to the consummation of the sale, towards the discharge of the old mortgage which it is conceded was a first lien on the property. There is no reasonable doubt that the full value of the new securities was paid from' the funds of Richard M. Neely to his mother, or for her benefit, in the clearing of *17the title to the property, and the record shows that counsel for Williams assisted materially in proving this fact. The sources from whence the money was obtained were fully and conclusively shown. Williams knew that his note and mortgage were not made to Mrs. Neely, the vendor, but were made to the absent Richard M. Neely. And now, manjr years after the consummation of the transaction, when Richard M. Neely seeks payment of that which he bought and paid for innocently and in good faith, there is set up against his demand a breach of the covenant against incumbrances arising from the existence of the lien of the annuities. The majority of the court hold in the foregoing opinion that this may be done, but I am unable to bring myself to the conclusion that any just application of legal or equitable principles can accomplish that result.
In Glascock v. Rand, 14 Mo. 550, it was held:
“If a purchaser of land executes a negotiable note for the purchase money to an apparent stranger to the title, and fails to secure himself by a proper penal covenant, he has no one to blame but himself, and cannot set up as a defense to the note the failure of the parties in interest to execute proper conveyances to him.”
In Cagle v. Lane, 49 Ark. 465, 5 S. W. 790, a similar rule was announced. Cagle purchased from Cummings an interest in a patent right, for which he was to give his note. At Cummings’ direction, Cagle made the note direct to Lane, the plaintiff, who paid Cummings a consideration therefor. The patented invention proved to be worthless, and Cagle refused to pay the note; claiming inter alia a failure of consideration, and that the plaintiff was not a bona fide purchaser. The court held that the transaction was the same in substance as if the note had been drawn in favor of Cummings, and by him indorsed to the plaintiff, and that the defense was not maintainable.
In Iron Co. v. Brown, 63 Me. 139, the court said:.
“Where, at the request of the party with whom he deals, one makes his promissory note, which is to be a partial payment for a piece of work to be done for him, payable to a third party, who is a creditor of the party with whom he contracts for the work, and it is credited by the payee to such party in good faith, the maker cannot set up a failure of consideration, as between himself and the party with whom he deals, in defense of a suit upon such note in the name of the payee.”
The English rule is the same. Munroe v. Bordier, 8 C. B. 862, 65 E. C. L. 861; Porier v. Morris, 2 El. & Bl. 89, 75 E. C. L. 88.
Moreover, it is common doctrine, no longer open to debate, that knowledge of the conditions surrounding the consideration of a promissory note, without knowledge of a breach, will not affect the rights of a purchaser. Miller v. Ottaway, 81 Mich. 196, 45 N. W. 665, 8 L. R. A. 428, 21 Am. St. Rep. 513; Rublee v. Davis, 33 Neb. 779, 51 N. W. 135, 29 Am. St. Rep. 509.
In United States Nat. Bank v. Floss, 38 Or. 68, 62 Pac. 751, 84 Am. St. Rep. 752, it was held that knowledge in the purchaser of a note that it was given in consideration of a good title to land, does not affect his right to recover, in case of a breach of the contract to convey, unless he knew the breach had already occurred.
*18In Parsons on Notes & Bills it is said that knowledge on the part of the holder at the time he took the note that it was not to be paid on a specified contingency is not sufficient to defeat his right to recover, although the contingency had then happened, if he was ignorant of the fact. Volume 1, p. 261.
In Tiedeman on Commercial Paper it is said:
“The authorities generally hold that the purchaser of commercial paper is not burdened with the requirement to see to the execution and full performance of the consideration merely because he knows what it is.” Section 300.
Under the settled rule of the Supreme Court, a much stronger case could be assumed against Richard M. Neely than the record justifies, and yet not impair his right to recover from Williams. That rule is that bad faith alone will defeat the right of the purchaser, but a suspicion of a defect or knowledge of circumstances that might excite such suspicion in the mind of a cautious person, or even gross negligence at the time, is insufficient. Hotchkiss v. Banks, 21 Wall. 354, 359, 22 L. Ed. 645; Murray v. Lardner, 2 Wall. 110, 17 L. Ed. 857.
. With these principles in mind, I am unable to find any support for the reversal of the decree of the Circuit Court. It is not asserted in the foregoing opinion that Richard M. Neely personally obligated himself in respect of existing incumbrances, nor that he was guilty of bad faith, nor, except by suggestion or inference, that he was aware or even had any suspicion that his mother had failed to lift or make satisfactory provision concerning the annuities during the months succeeding his sole connection with the transaction. Nor is the result rested on a contention that he did not pay his mother full value for the note and mortgage.
It is said in the foregoing opinion that the deed, note, and mortgage “were prepared by Annie H. Neely, or by one of her agents.” A cursory reading of the opinion would convey the inference that Richard M. Neely may have been the agent, or may have been present. But the record shows, without dispute, that he was not present, did not prepare any of the instruments, and did not in any manner participate in the closing of the sale. And it does not appear that he was aware of any default of his mother when the deed was delivered. It is also said in the foregoing opinion that what amount, if any, he paid his mother for the note and mortgage, was “left in grave doubt by the evidence”; and while this is said to be immaterial, in the view of the case which is adopted, its tendency is to support an inference that, after all, a just result was attained by the opinion of the court. I have already observed that it was ■overwhelmingly shown that the consideration was paid, and where it came from, and that counsel for Williams assisted in showing it. The greater portion of it came from the payment for another tract of land, which belonged to Richard M. Neely and a brother, and in which their mother had no interest whatever. Again, the fact is ¡referred to in the foregoing opinion that Richard M. Neely was one of the sureties upon the bond of his mother as executrix. It is true that he was, but I am at a loss to perceive why that fact was referred to as even remotely justifying the conclusion which was *19rea ched. The suit was not one directly or indirectly to reach Richard M. Neely’s responsibility as a surety. Moreover, the maximum of his liability as a surety was limited by the bond to $1,000, and that is not the limit which the court in the foregoing opinion has placed upon his liability to respond for the breach of his mother’s covenant against incumbrances. On the contrary, it is expressly said that the undischarged incumbrances are about equal to the amount of the note, which is now several times the penal sum of the bond of the executrix. The case of Williams is solely supported by a number of unrelated facts and circumstances which are consistent with his own mistake, negligence, or voluntary acquiescence when the sale was consummated, but which neither singly nor in combination show bad faith on the part of Richard M. Neely, of knowledge of the failure of consideration for the note and mortgage, or absence of consideration for his purchase of them.
For these reasons, I am of the opinion 'that the decree of the Circuit Court should be affirmed.