Opinion
October 17, 1924.
APPEAL from the District Court of the Fifth Judicial District, for Bannock County. Hon. O.R. Baum, Judge.
Action upon promissory note, Judgment for plaintiff. Reversed and remanded for new trial.
Arthur W. Holden and Solon Orr, for Appellant.
The note in suit showed an alteration on its face which changed the time of payment. It was improperly admitted in evidence, without any explanation of this alteration and without any showing that it was so altered before it came into respondent's hands. (C. S., sec. 7980; Mulkey v. Long, 5 Idaho 213, 47 P. 949.)
The alteration of the note, by changing its date, was a material alteration. (C. S., sec. 5992, subd. 1.)
A material alteration appearing upon the face of the note itself, the respondent is not a holder in due course. (C. S., sec. 5919, subd. 1; Elias v. Whitney, 50 Misc. 326, 98 N.Y. Supp. 667; Holbart v. Lauritson, 34 S.D. 267, 148 N.W. 19, L.R.A. 1915A, 166.)
Respondent being not a holder in due course, the alteration changing the date voided the note. (C. S., sec. 5991; Elias v. Whitney, supra.)
Undisputed evidence having been received that showed material alteration which avoided the note, besides other alterations, and the respondent being not a holder in due course, there were a number of questions to go to the jury, and the trial court ought not to have directed a verdict for respondent. ( Palcher v. Oregon Short Line Ry. Co., 31 Idaho 93, 169 Pac. 298; McAlinden v. St. Maries Hospital Assn., 28 Idaho 657, Ann. Cas. 1918A, 380, 156 P. 115; Keane v. Pittsburg Lead Min. Co., 17 Idaho 179, 105 P. 60.)
H.J. Swanson, for Respondent.
The respondent is a holder in due course. (1 Daniel, Negotiable Instruments, sec. 812; C. S., secs. 5919, 5923, 5991; Winter v. Nobs, 19 Idaho 18, Ann. Cas. 1912C, 302, 112 Pac. 525; Park v. Johnson, 20 Idaho 548, 119 P. 52; Park v. Brandt, 20 Idaho 660, 119 P. 877; Vaughn v. Johnson, 20 Idaho 669, 119 P. 879, 37 L.R.A., N.S., 816; 2 Daniels Negotiable Instruments, 1419; Paramore v. Lindsey, 63 Mo. 63; Wilson v. Harris, 35 Iowa, 507; Voris v. Anderson, 65 Okl. 270, 153 P. 291, 166 P. 213; National Bank of St. Joseph v. Dakin, 54 Kan. 656, 45 Am. St. 299, 39 P. 180; Bledsoe v. City National Bank of Selma, 7 Ala. App. 195, 60 So. 942; Tower v. Stanley, 220 Mass. 429, 107 N.E. 1010; Ensign v. Fogg, 177 Mich. 317, 143 N.W. 82; Public Bank of New York City v. Knox-Burchard Merc. Co., 135 Minn. 171, 160 N.W. 667; Redfield State Bank v. Myrick, 108 Kan. 191, 194 P. 648.)
Defect of title of prior parties among themselves, or defenses available to prior parties among themselves, were not available against respondent. (C. S., sec. 5924.) Nor the fact of a material alteration to which respondent was not a party. (C. S., sec. 5991.)
This action was brought to recover upon a promissory note. The complaint alleges that the note in question, a purported copy of which appears in the complaint, was made and executed by appellant on February 14, 1921, and delivered to defendant, W.O. Johnson, doing business under the name Changnon Company. The principal amount of the note was $1,080, which was payable in twelve equal monthly instalments of $90 each, the first instalment being due and payable "one month after date." It is next alleged that "before the due date of the first payment of said note" Changnon Company indorsed said note to plaintiff, in due course of business and for value, and that no part of the note had been paid except the first two instalments. To the complaint a demurrer was filed but was overruled by the court. Appellant thereupon answered, denying specifically each and every material allegation of respondent's complaint and alleging that on December 7, 1920, he executed a note similar to the one set forth in the complaint, and, as a part of the same transaction entered into a conditional sale contract with Changnon Company for the purchase of a Viele automobile; that on December 7, 1920, Changnon Company did not own said Viele automobile nor any interest therein; that the promissory note and conditional sale contract were both tentatively and conditionally signed in connection with a proposed transaction in which Changnon Company were to deliver to appellant a new Oldsmobile sedan and upon its delivery the Viele automobile was to be transferred to Changnon Company, at which time the note and contract were to be delivered to that company; that the Oldsmobile sedan was never delivered, the proposed transaction was never consummated and appellant received no consideration for the conditional sale contract and promissory note; that the promissory note and conditional sale contract were delivered to Changnon Company for the sole purpose, and no other, of submitting the same to an agent of respondent for approval, but that the instruments were never returned, although numerous demands were made for them. Respondent further alleges that the note was materially altered by changing its date from December 7, 1920, to February 14, 1921, thereby changing the time of payment of the instalments of the note. Defendant W.O. Johnson made no appearance. The cause was tried to the court and a jury. Both sides having introduced proof and rested, a motion for directed verdict was made by respondent, which was sustained. Verdict and judgment in accordance with the prayer of the complaint was thereupon entered, from which judgment this appeal is taken.
Numerous assignments of error are made in appellant's brief and relied upon for reversal of the judgment. We deem it unnecessary to discuss each one separately. It is contended that the court erred in admitting in evidence the note sued upon, Exhibit "A." This objection is based upon C. S., secs. 5991 and 7980, which read respectively as follows:
"Sec. 5991. Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized or assented to the alteration and subsequent indoners. But when an instrument has been materially altered and is in the hands of a holder in due course, not a party to the alteration, he may enforce payment thereof according to its original tenor."
"Sec. 7980. The party producing a writing as genuine which has been altered, or appears to have been altered, after its execution, in a part material to the question in dispute, must account for the appearance or alteration. He may show that the alteration was made by another without his concurrence, or was made with the consent of the parties affected by it, or otherwise properly or innocently made, or that the alteration did not change the meaning or language of the instrument. If he do that he may give the writing in evidence but not otherwise."
The last quoted statute (C. S., sec. 7980) was construed by this court in the case of Mulkey v. Long, 5 Idaho 213, 216, 47 Pac. 949, where it was said:
"The conclusion, it seems to us, from all the decisions, is simply this: The party presenting an instrument which, upon its face, shows that it has been altered, is required to explain such alteration, or at least show that it has not been altered since it came to his hands. The parties who made or executed the instrument may have made or assented to the alteration before its execution, and yet the holder be entirely unable to prove that fact. We think, therefore, that the exigency of the statute is complied with when the party presenting the instrument in evidence has shown that there has been no alteration therein since it came into his hands. ( Galland v. Jackman, 26 Cal. 79, 85, 85 Am. Dec. 172; Sedgwick v. Sedgwick, 56 Cal. 213.)"
Testimony was introduced by respondent in this case that when the note was forwarded to it, it was in exactly the same condition as when request was made that it be admitted in evidence, and, in accordance with the rule laid down in Mulkey v. Long, supra, the court did not err in permitting it to be introduced in evidence.
Having determined that the note was properly admitted in evidence, we come now to the serious question involved in this case, which is as to whether or not the respondent was a holder in due course. If respondent was a holder in due course and not a party to the alteration he could enforce payment thereof according to the original tenor of the note. If respondent was not a holder in due course, the instrument would be avoided. (C. S., sec. 5991.) C. S., sec. 5919, provides that:
"A holder in due course is a holder who has taken the instrument under the following conditions:
"1. That the instrument is complete and regular upon its face.
"2. That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact.
"3. That he took it in good faith and for value.
"4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it."
An examination of the note admitted in evidence discloses the fact that the same is not complete and regular upon its face. Four irregularities appearing upon its face point to this conclusion: (1) Attention is first called to the date of the note, which appears as "February 14, 1921." It is apparent that an erasure and change has been made. The figures "19" are printed. The figure "2" appears in black typewriting. The remainder of the date appears in blue typewriting. All other typewriting on the note has been done with a black typewriter ribbon. (2) An erasure and change has been made in the amount of the note and part of the original typewriting can still be seen. (3) On the back of the note are six two-cent internal revenue stamps each of which bear the following cancellation in ink "12/7/20 GWT." There is also a ten-cent revenue stamp on the back of the note which bears the following cancelation "2/7/21" and initials which are not legible, the ink used in canceling the ten-cent stamp being different from that used in canceling the two-cent stamps. A comparison of the initials upon the two-cent stamps with the signature shows a similarity that would indicate that all were written by the same person. It is to be noted that the dates on which the stamps were canceled, to wit, "12/7/20" and "2/7/21," are prior to the date upon which the note was executed, as it now appears, to wit, "February 14, 1921." (4) Over the date and amount of the note are written the initials "GWT." A comparison of this writing with the signature on the note would indicate that they were not written by the same person, and a comparison with the initials "GWT" by which the two-cent stamps were canceled fails to disclose the slightest resemblance in handwriting.
Upon the trial appellant testified that the note when he signed it, bore the date of December 7, 1920, and that it was not changed by him; that he did not change the amount; that he did not write the initials "GWT" over the date and the amount; that he did not authorize the changes made on the note and that the same were made without his consent or knowledge; that he canceled the two-cent stamps on the back of the note on December 7, 1920, and that the initials thereon were in his handwriting. No evidence was offered by respondent to contradict or deny this testimony or to explain or overcome the irregularities appearing upon the face of the instrument. C. S., sec. 5992, provides, inter alia that:
"Any alteration which changes:
"1. The date.
"2. The sum payable, either for principal or interest,
"3. The time . . . . of payment . . . . or any other change or addition which alters the effect of the instrument in any respect, is a material alteration."
There is sufficient competent evidence to show that a change was made in the date. The change in the date altered the time of payment. If the note was dated February 14, 1921, the first instalment, being due "one month after date," would become due March 14, 1921. If the note was dated December 7, 1920, the first instalment would become due January 7, 1921, in which event the respondent did not purchase the note before maturity and it was not a holder in due course, for the reason that the only testimony was to the effect that respondent purchased the note on or about February 14, 1921. The rule would seem to be that if an instalment of a note is overdue at the time it is transferred, the purchaser takes the whole note as overdue paper and is not a holder in due course. ( Hall v. E. W. Wells Son, 24 Cal.App. 238, 141 P. 53; 1 Daniels, Negotiable Instruments, sec. 787; 8 C. J. 410, sec. 606.) In the case of McCorkle v. Miller, 64 Mo. App. 153, 156, it is said:
"The reason of the rule is that, where one or more of the instalments remain due, the presumption arises that there is some valid reason for the failure or refusal to pay, which, if established, would likely go to the defeat of the entire debt, and thus all subsequent purchasers or holders of the discredited paper are put on inquiry."
To the same effect see Field v. Tibbetts, 57 Me. 358, 99 Am. Dec. 779; Narwood v. Leeves (Tex. Civ.), 115 S.W. 53; Vinton v. King, 4 Allen (Mass.), 562.
Where the evidence is conflicting, or different inferences may be drawn therefrom, the question whether plaintiff is a holder in due course is one for the jury, provided the evidence is sufficient to warrant the submission of the question to the jury. (8 C. J. 1061, sec. 1376, and cases cited; Winter v. Hutchins, 20 Idaho 749, 119 P. 883.) One of the issues raised by the pleadings in this case was whether or not there were material alterations made upon the face of the note and when and by whom these alterations were made. That there were alterations made is apparent. Whether these alterations were made by the maker or with his consent before the note was purchased by respondent or thereafter and whether respondent had notice of these alterations or infirmities in the instrument itself, which was direct knowledge or knowledge of such facts that would put it upon inquiry, or whether the action of the respondent in purchasing the note was in good or bad faith were all questions that should have been properly submitted to the jury under proper instructions.
It therefore follows that the court erred in directing a verdict for respondent, which being true, judgment of the lower court must be reversed and the cause remanded for a new trial. Costs are awarded to appellant.
McCarthy, C.J., and William A. Lee and Wm. E. Lee, JJ., concur.