Alabama National Bank v. Halsey , 109 Ala. 196 ( 1895 )

McOLELLAN, J.

This action is by the Alabama National Bank against Halsey, on a promissory note executed by the defendant to the plaintiff, and payable at the latter’s bank in Birmingham, Ala. The defenses relied on were two, — false representations whereby defendant was induced to make the original note, which, through several renewals, constituted the consideration of that sued on ; and the illegality of the consideration of said first note and the renewals thereof. The 3rd, 4th and 7th pleas were intended to present the first defense mentioned, false representations by the plaintiff, or some one for whose representations in the premises the plaintiff is responsible. The 3rd and 4th pleas aver that the original note was made to R. D. Johnston, and that R. H. Johnston, Joseph F. Johnston and Samuel H. Buck were associated and interested together in placing or selling Corporation stock, that'Buck, acting for himself and his said associates, made alleged false representations to Halsey, and thereby induced him to buy the shares of said stock, which constituted the consideration of the original note. These facts imported responsibility on both R. D. and Joseph F. Johnston for the representations of Buck.

The misrepresentations averred in the third plea are clearly sufficient to avoid the original note and all mere renewals of it, as between Halsey and R. D. Johnston and his assignees with notice. The demurrer goes to both the 3rd' and 4th pleas, and this not separately, but jointly. Hence, even if the representations averred in the 4th plea are not of a character which, if false, would avid the contract, still the demurrer, so far as-this ground is concerned, was properly overruled, as to have sustained it would have been to adjudge the third plea also bad in this respect, which it clearly was not.— Weems v. Weems, 69 Ala. 104.

The further objection taken by the demurrer to these pleas, that they do not show that plaintiff had any notice of this infirmity of the original note, is in point of fact well grounded — the pleas do not show such notice — but in point of law the objection is untenable. Prima facie, the pleas, without averment of such notice, presented a good defense, and put it upon plaintiff to reply that it purchased the note in good faith, for value, before maturity, and without notice of the alleged infirmity.—Ross v. Drinkard’s Admr. 35 Ala. 434; Gilman Sons & Co., v. New Orleans & S. R. Co., 72 Ala. 566, 582; Mayor v. Wetumpka Wharf Co. 63 Ala. 611, 632; Johnson v. Hanover Bank, 88 Ala. 271. Upon these considerations, we hold further that the demurrer to defendant’s 7th plea was properly overruled'.

* What is said above as to the sufficiency of pleas 3 and 4, notwithstanding they do not aver notice to plaintiff of the infirmity of said note therein alleged, applies also to pleas 10 and 11, to which this ground of demurrer was also interposed. Pleas 10 and 11 aver that the Coal City Coal & Coke Company is an Alabama corporation. It is contended in argument that to present the defense intended to be made by these pleas, viz., that the consideration of the original note was fictitious, and therefore void, stock of said company to be issued to Halsey, &c. &lq , they should have averred that the corporation was organized under the general incorporation laws of the State, so as to have excluded the idea that it was organized under a special charter authorizing stock to be issued as this is alleged to have been. Without stopping to inquire or decide whether the legislature has power under the Constitution to confer such authority upon any corporation, it will suffice to say that this objection to the plea is not pointed out in the demurrers ; and the rule established by our statute, and decisions upon it, is that no objection to pleading can be considered other than that specifically stated as ground of demurrer. — Code § 2690; 3 Brick. Dig. 705, §§ 70, et seq.; Turner Coal Co., v. Glover, 101 Ala. 289.

. Pleas 10 and 11 are not open to any of the objections which were taken to them by the several assignments of demurrer. They show that the consideration of Halsey’s original note was fictitious stock of the Coal City Coal & Coke Company, to be thereafter issued to him, the performance and consummation of the contract necessarily involving a violation of law, and therefore rendering it illegal and void, on the principles declared in Williams v. Evans, 87 Ala. 727; and that the note sued on is but a renewal of this original invalid contract. The demurrers to these pleas were properly overruled.

The plaintiff did not take issue on either of defendant’s pleas numbered 3,4, 7, 10 and 33, which were the only pleas in the case at the trial except that of the general issue, but specially replied thereto setting up as an answer to all of them the following facts : That the ozúginal note znade by Halsey was for $5,000, and payable to the «Goal City Goal & Ooke Company, in February, 1890; that plaintiff discounted this note for said company at 8 percent, in August, 1889, in good faith, and without notice of any infirmity therein ; that said note was thezi indorsed to plaintiff by said company, and the proceeds thereof were thezi paid to said coznpany , that when said note fell due it was renewed by the defendant until June 4th, 3890, he paying the interest thereon then due and to accrue before maturity of the renewal note ; that this second note was renewed by Halsey to October 4th, 1890, he again paying the interest as before ; that the origizial note and those of February 4th and Juzio 4th, 1890, were payable -at the Alabama National Bazik, and were negotiable, and were acquired by plaintiff for value, without notice of any want or failure of cozisideration, or any defense, set off, dis'count or infirmity thereto, and said Halsey set up no such claizn ; “that the note due Oct. 4th, 1890, was not paid at maturity, and plaintiff placed it in the hands of attorneys for collection by suit or otherwise, and thereupon said Halsey, in January, 1891, proposed, in settlement and adjustment thereof, that if the plaintiff would accept the sum of $1,000. in cash and give him six znonths time, with the privilege of a further extension of six months in case he so desired it to pay the balance, he would pay the same proznptly when due ; and plaintiff accepted said proposition and took said Halsey’s note payable to itself, and released said Coal City Goal & Coke Company as indorser, and accepted the $1,000 and the note of said Halsey for $4,265-23, due June 7th, 1891; and that when said note fell due plaintiff renewed the same at Haisey’s request for a balance of $4,000; and when said last note fell due on January 7th, 1892, said Halsey asked for further time; and, upon payment by him ' to' plaintiff of-$l,000y plaintiff did grant - -him further time azid renewed- said note for-said balanee- of $3,000, to June 15th, 1892, and at its maturity again renewed said debt.”

On the trial, Halsey, as a witness in his own behalf, was permitted against plaintiff’s objection to testify as follows: “Buck stated to me that Capt. Joseph F. Johnston and his brother, R. D. Johnston, and others were interested in the company, that the property of the company was very valuable and would pay 20 per, cent. on the investment; and he showed me a letter he had from Capt. Johnston, in which Capt. Johnston stated that he, Buck, would like to get some of their friends in Huntsville interested in the company, that in his opinion the property would pay twenty per cent, easily and that it could be sold in a.little while at a profit; that witness said to Buck that he did not have the money to invest in the stock; that Buck then said to witness that he would have no monejr to pay, that he would only have’to make his note ■ for $5,000 for $10,000 of stock tobe issued.to him, that Captain Johnston would arrange to carry the note, and that he would get $10,000 of the stock, of the Coal City Coal & Coke Company when he paid the note.” Plaintiff’s objection was overruled, and an exception was reserved. At the close of Halsey’s testimony, as the bill of exceptions recites, “the plaintiff moved the court to exclude from the jury everything that he had said in regard to any statements made to him by Capt. Buck, or any conversation with Buck, and about Buck’s shówing him Captain .John ston’s letter and the contents of that letter, and any representations made to him by Buck, because the same was irrelevant, illegal and incompetent evidence. ” The court overruled this motion, and the plaintiff excepted. “The plaintiff renewed the motion,” the bill .of exceptions further shows, “at the conclusion of Captain •Johnston’s testimony, and also after all the evidence was in; and the court -made the same ruling, and the plaintiff excepted.” The - only suggestion made- by counsel in support of these rulings is that the objection and motions were too general, in that they went to a mass of evidence in a lump, and “that some, at least, of that evidence was’competent .under the pleadings," it being in direct support of averments in pleas upon which the plaintiff did not even join issue.” It is true that some of this evidence went to support defendant’s pleas which set up the misrepresentations of Buck as avoiding the contract and original note. Plaintiff’s replication to all these pleas, however, set up that it purchased the note in the regular course of its business, for value, before its maturity, in good faith and without notice of the alleged misrepresentations of Buck and consequent fraud in the transaction. And the evidence showed without conflict that the note had been purchased by the plaintiff in the usual course of its business, for value, and before maturity. This shifted the burden on to the defendant to show, so far as this alleged defense is concerned, that plaintiff had knowledge or notice of the infirmity of the transaction growing out of Buck’s alleged misrepresentations. This burden the defendant did not undertake to discharge, and there is no evidence whatever in the record of any such knowledge or notice. It being thus shown without conflict that, so far as the defense resting upon what Buck said and did is concerned, primo, facie, plaintiff was a bona fide purchaser, for value, of the note, without notice of Buck’s .misrepresentations, and defendant offering no evidence to overturn the replication thus made out, by showing notice of this alleged fraud, the court should have excluded all evidence going to support said pleas in reference to the motion renewed by plaintiff after all the evidence in the case had been adduced.

' The case below really turned upon the truth or falsity of the plaintiff’s replication upon which the defendant took issue.' The plaintiff not having taken issue on defendant’s special pleas, and the defenses relied on hot being within the general issue presented by the parties, it was essential to plaintiff’s recovery that the averments of the replication be proved. As we have seen, the replication avers that the note first given was payable to the Coal City Coal & Coke Company, and was by that company indorsed to the plaintiff. The evidence is directly conflicting as to one of these averments, and inferentially so as to the other. The evidence for the plaintiff goes in support of both ; but the testimony of the defendant is direct and positive that the original note was payable-to R. D. -Johnston, and not to said company; arid this, in connection with evidence for plaintiff tending to show indorsement.by the payee to it, affords some inference-that the -.indorsement was by Johnston, and not the company. Then the replication avers that the plaintiff purchased the original note, for value, before maturity, and without notice of the illegality of its consideration. The evidence for plaintiff tended to support these averments, but we cannot say there was no conflict in the evidence with reference to them. On the contrary, we find that the fact that a certificate for $10,000 of stock in said company was at the time of the negotiation attached to the note as collateral security for its payment, — taken in connection with the evidence of Captain Johnston, who was then president of the plaintiff bank, that he did not know there was any such note in existence until it was brought to his hank for discount, but that when the discount was made he was aware that the consideration of this $5,000 note was said $10,000.00 of stock in said company, — at least afforded some ground for a. conclusion on the part of the jury that the president’s knowledge or notice of such consideration came to him at that time and in that transaction between the bank, acting by him, and the payee of the note, and was, therefore, the knowledge of or notice to the bank itself.

Again, the replication is intended to avoid the special pleas upon each and both of two considerations. First, by showing the bank had no notice of the infirmity of the original note, and purchased it for value, &c.; and upon this point of notice we have just seen the evidence was conflicting. And, second, by showing that defendant’s promise to pay plaintiff, evidenced by the note sued on, is supported by a new, independent and legal consideration, and is therefore obligatory on defendant, though the consideration of the original note was illegal and plaintiff had notice of the fact at the time of the discount. This new consideration is supposed to arise upon the facts that the original note was indorsed to the bank, and that subsequently the bank at defendant's request took his note payable directly to it-in lieu of the first note and indorsement, thereby .releasing the indorser, from whom, it is insisted, a recovery might have been had, even though the consideration of the indorsed paper were illegal and known to be so. In this connection, we may concede it tó be the' settled- l&w, that, while no number of mere renewals', and consequent extensions of the time for payment, of a promissory note given upon an illegal consideration, will eliminate that infirmity, yet, if there be a consideration for the new note other' than the renewal of, and extension of the time for payment of the debt evidenced by, the old one, such other consideration, whether of benefit to the promisor or of detriment merely to the promisee, will support the new contract, and entitle the payee therein to recover upon it, notwithstanding the illegality of the original note, and that the release of an indorser of the original illegal paper would ordinarily constitute a new and sufficient consideration for the renewal note, since, in the absence of participation by the indorsee in the illegal transaction out of which the consideration for the note arises, he may recover against the indorser, notwithstanding the illegality of the paper indorsed, and this if seems though he had notice of the illegality of the consideration of the note when he purchased it. — Tied, on Com. Paper, § § 199, 259; 2 Rand. Com. Paper, § § 536, 756; 1 Daniel Neg. Inst. § § 205-6, 669-a; 669-b; 2 Am. Eng. Ency. of Law, p. 385; Cupp v. McDougall, 9 Mass. 1; Torbett v. Worthey, 1 Heisk. (Tenn.) 107; Cuthbert v. Haley, 8 Term. Rep. 318; Culvert v. Williams, 64 N. C. 168; Wood, Murphy & Co. v. Morgan & Duncan, 67 Ala. 461, 468. But the evidence here not only tends to ' show notice to the bank, of the consideration for the original note, but also to show that the contract of indorsement itself involved the doing of an illegal act — the issuance of fictitious corporation stock, — and such act — the issuance of such stock to plaintiff — was a part of the consideration moving to it for discounting the paper. Defendant’s evidence was to the effect that the fictitious stock was to be issued to him only upon the payment of the original note. According to the evidence for plaintiff, this note was payable to the Coal City Coal & Coke Company, and was brought to the bank for discount by that company, having the certificate of shares of its stock amounting to $10,000 attached to it. This stock was thus held by the company up to the moment it passed to the plaintiff, along with the note. It had not prior to that moment been issued by the company. It was then and there issued as a part of the transaction in which the note was discounted and’ as a part of the contract of indorsement, and along with this contract its issuance was a part of the consideration moving to the plaintiff for the payment it then made to the company. In other words, if the fact, as the jury had a right to-find, was in line with this evidence, the plaintiff not only participated in the illegal act which constituted the consideration of the original note — the issuance of the fictitious stock — which, of itself, would leave the bank without any remedy against the indorser, (Tied. Com. Paper, § 259; Armstrong v. Toller, 11 Wheat. (U. S.) 258), so that the formal release of the indorser could not constitute any consideration for the renewal notes, but the contract of indorsement itself — considered as a new contract, independent of the note — involved the doing of an illegal act, and was thus tainted by illegality of consideration, bringing the case directly within Williams v. Evans, supra, even as between the bank and the Coal Company, rendering the contract on this ground also unenforceable by the indorsee against the indorser, and its release incapable of constituting a new consideration for the note suéd on. Tne evidence is, therefore, to say the least, conflicting as to several material averments of the replication. It follows, of course, that the affirmative charge requested by the plaintiff could not properly have been given.

Charge 2 requested by plaintiff contravenes the well settled principle that mere renewals, however often repeated, of a promissory note, invalid because of illegality of consideration, do not heal the infirmity or prevent the maker from insisting upon it. Ware v. Morgan, 67 Ala. 461, 468.

Plaintiff’s third request for an instruction was bad for several reasons. In the first place, there is no averment in the replication that the original note was made payable to R. D. Johnston. Then, too, the charge assumes or declares that the attaching of the stock certificate to the note, even though both were still held by the company, was an issuance of the stock to Halsey, and this notwithstanding the jury may have found that no stock was to be issued to Halsey until he paid the note. And, moreover, the charge would have tended to mislead the jury to the conclusion .that mere renewals of a note, without claiming any defense to it, would eliminate original illegality of consideration.

The charges given at the instance of the defendant, in effect, submit to the jury whether the facts averred in certain of the special pleas, which we have held-good, are true, and also whether certain facts set up in the replication in avoidance of these pleas are true, and instructs them to return a verdict for the defendant if they should find the pleas to have been proven, and the replication not to have been proven. Clearly, there was no error in giving these charges.-

For the error committed in overruling plaintiff’s motion in respect to certain testimony of Halsey, pointed out above, the judgment must be reversed. The cause is remanded.