Opinion
No. 1955
Decided April 9, 1948.
Negotiable instruments — Promissory note — Sale and endorsement by payee before maturity, without qualification — Purchaser, for sum less than face value, holder in due course — Purchaser representing that payee not liable although maker defaults — Misrepresentation one of law — No defense in action against payee.
1. Where the payee of a promissory note sells it before maturity and endorses it without qualification to the order of another, the endorsee becomes a holder in due course.
2. Where the payee of a note sells it before maturity for an amount less than face value and endorses it without qualification, the endorsee may enforce payment of the full amount of the note.
3. Where the payee sells a note before maturity and endorses it without qualification to another who at the time represented to the payee that the payee would not be liable thereon in the event the maker failed to pay the note according to its terms, such misrepresentation is one of law and not of a material fact, and is not defense to an action on the note instituted by such endorsee against the payee.
APPEAL: Court of Appeals for Montgomery county.
Messrs. Beigel Mahrt, for appellee Harlan W. Yendes.
Mr. T.L. Barger, for appellant.
This is an appeal on questions of law from a judgment of the Common Pleas Court of Montgomery county. Plaintiff's demurrer to the second and third defenses in the answer and to the counterclaim of defendant C.W. Hall, the appellant herein, was sustained. The appellant not desiring to plead further, the second and third defenses and the counterclaim were dismissed.
The defendants Harley L. Shaw and S. Esther Shaw, appellees herein, executed their promissory note for $6,000, payable to Hall, in connection with the purchase of a restaurant. To secure the payment of the note a chattel mortgage was executed in favor of Hall on all the chattel property in the restaurant. A short time thereafter and before maturity, Hall endorsed the note without qualification and transferred the chattel mortgage to the plaintiff, Harlan W. Yendes, an appellee herein, who paid Hall therefor the sum of $4,500. The Shaws defaulted in payment of the note according to its terms and plaintiff instituted a suit on the note and asked for the foreclosure of the chattel mortgage. Default judgment was taken and the sale of the chattel property was ordered. Hall at this stage of the proceedings filed a motion to vacate the judgment against him. The court vacated the judgment taken on the note but proceeded to sell the chattel property at public auction. Hall filed an answer and counterclaim to which the demurrer was sustained.
Hall in his second defense alleges that "he sold to plaintiff the note described in plaintiff's petition and received therefor the sum of $4,500 same having been discounted to that extent in order that said defendant receive cash." The fact that Hall sold a $6,000 note for $4,500 before maturity and endorsed the note without qualification to the order of the plaintiff did not make Hall an endorser without recourse. The plaintiff became a holder in due course. Section 8157, General Code. There is no claim made of any infirmity in the note existing between the Shaws and Hall. Consequently, the plaintiff is not deprived of his right to enforce payment of the full amount of the note. Sections 8162 and 8171, General Code.
For a third defense Hall alleges that plaintiff's agent informed Hall that, "under the manner and form of the transfer of the note and chattel mortgage, said defendant would not be liable to said plaintiff in any sum or sums whatsoever in case of the failure of Harley L. Shaw and S. Esther Shaw to pay same or payments provided therein; that no liability would attach to said Hall of any kind after the transfer of said note and mortgage; that said representations were false and that plaintiff's agent knew them to be false; and that said defendant believing said representations and acting therein, transferred said note and mortgage to said plaintiff." It is clear that the plaintiff's agent misrepresented the legal effect of Hall's endorsement and his legal obligation after the transfer. A misrepresentation of law as to Hall's legal rights and obligations however erroneously and convincingly stated was but an expression of an opinion and does not constitute a defense on the ground of fraud. Everyone is presumed to know the law and, therefore, acts upon statements of that character at his peril. Not every erroneous representation will avoid a contract. To have that effect it must be a false representation of a material fact upon which the party who is injured had a right to rely and did rely. The misrepresentation alleged did not relate to a material fact. Aetna Ins. Co. v. Reed, 33 Ohio St. 283, 292.
In Yappel v. Mozina, 33 Ohio App. 371, 169 N.E. 315, the first paragraph of the syllabus is as follows:
"Generally, mere misrepresentations of what the law is cannot form basis for an action of deceit, even though representation was meant to be acted on and believed by parties to whom it was made and is acted on, since every man is supposed to know the law, and one believing statements made by another in that regard does so at his peril." See, also, 19 Ohio Jurisprudence, 416, Section 128; 23 American Jurisprudence, 809, Section 45; 153 A.L.R., 538.
In Wicks v. Metcalf, 83 Ore., 687, 163 P. 434, 988, L.R.A. 1918A, 493, which is referred to in the footnote in 23 American Jurisprudence, ibid., the facts were similar to those presented in the case at bar. The court held: "It is no ground for decree perpetually enjoining suit on notes given by plaintiff that she signed them on defendant's representing that her signature would not make her personally liable, since the misrepresentation or mistake was one of law against which relief will not be granted."
Hall in his counterclaim alleges the failure of the plaintiff to co-operate with him in his effort to dispose of the business; and that a portion of the chattel property was removed from the premises and sold causing a loss to Hall. There is no allegation that the plaintiff removed or sold the chattel property. On the other hand, it is definitely alleged that Shaw sold two ice cream freezers for less than the true value. There being no allegation to the contrary, it may be presumed that the sale was made by Shaw while he was in possession of the property and at a time when the plaintiff and Hall were out of possession. In our opinion the facts alleged do not show a cause of action against the plaintiff.
Hall did not allege facts constituting a good defense to the note in his second and third defenses of the answer. The counterclaim did not allege facts sufficient to constitute a cause of action. The demurrer was properly sustained.
As we find no error in the record, the judgment is affirmed.
Judgment affirmed.
MILLER and HORNBECK, JJ., concur.