Brooks v. Greil Bros. , 192 Ala. 235 ( 1914 )

de GRAFFENRIED, J.

(1) Greil Bros. Company, a corporation, is shown by this bill to be the assignee of a lease and rent notes described in the lease. These instruments are not governed by the law merchant, as rent notes are not payable in money, but in cotton. Greil Bros. Company cannot claim, therefore, the protection which our statutes afford to bona fide purchasers of commercial paper in the due course of business.

(2) This corporation is, in this matter, the holder of non-negotiable choses in action. It holds them as the assignee of the husband of complainant, and it — unless it possesses an equity which we discuss below — possesses only, by such assignment, the rights of the husband in the notes. The husband, if the allegations of the bill are true, possessed, at the time he transferred the notes to Greil Bros. Company, as against his wife, no right or claim upon the lease or the notes. As between him and her, they were the wife’s notes, and, as the notes and lease were non-negotiable, their assignment by the husband to Greil Bros. Company conferred, prima facie, no more rights upon Greil Bros. Company than the husband possessed in them when he made the transfer. Prima facie, Greil Bros. Company, as the assignee of the lease and notes, acquired no rights as against the wife, and prima facie, as between Greil Bros. Company and the wife, the notes and lease belong to the wife. These are hornbook principles. — Mechem on Agency, p. 625, § 7722. In the leading case of Pitts v. Mower, 18 Me. 361, 36 Am. Dec. 727, the Supreme Court of Maine said: “When an agent sells the goods of his principal and takes a promissory note payable to himself, the principal may interpose before payment, and forbid it to be made to his agent; and a payment to the agent after this will not be good. And the principal may sue in his own name on the contract of sale, except when, as with us, it is extinguished by taking a negotiable promise. It is said, in argument for the defendants, that the law will not imply a promise where there is an express one, and that, there being an express one in the note to Hiram A. Pitts, one cannot be implied to the plaintiff. The law regards the express contract made with the agent in the purchase as made with the principal and as remaining unextinguished by the note not negotiable. These rights. of the principal are well established, and were recognized in the cases of Titcomb v. Beaver, 4 Greenl. (Me.) 542, and Edmond v. Caldwell, 15 Me. 340. In this case the defendants were notified, before payment or judgment against them as trustees, that the plaintiff was .the owner of the property sold, and that he claimed to have the payment made to himself. If they thought proper to disregard that notice, the rights of the plaintiff cannot thereby be impaired.”

In the case of National Life Ins. Co. v. George D. Allen, 116 Mass. 398, the Supreme Court of Massachusetts said: “As a general rule, where a written agreement not under seal is made on behalf of a principal not named, and the consideration has moved from him, it is competent for the principal to bring an action in his own name on such agreement thus made for his benefit; and, on the other hand, even when the agent may himself be liable upon a written contract, because he has failed fully to disclose that he has made it on behalf of another, the principal on whose behalf he has made it may also be liable. — Huntington v. Knox, 7 Cush. (Mass.) 371, 374, and other cases cited in Exchange Bank v. Rice, 107 Mass. 37, 43 [9 Am. Rep. 1].

“The instrument here sued, although not negotiable, is properly designated as a promissory note, it being an absolute promise to pay money at all events; but, from its nature, an action upon it must necessarily be confined to those who are actually parties to it, either really or nominally, and it is clearly not intended to make any contract which was capable of transfer or assignment. On notes similar in their general, character to this, it has been held that the action might be maintained in the name of the principal from whom the consideration moved. In Garland v. Reynolds, 20 Me. 45, upon a note not negotiable for $100, payable to Enoch Huntington, treasurer of the committee of surplus revenue, it was held that the town for whose money the note was given might sue in its own name.

“In the present case, the principal is entitled to the benefit of the note, and the defendant can sustain no injury by suit in the name of the principal, as he would have the benefit of any payments made by him to the nominal payee, while acting as agent.

“Nor do we think that the St. 3 & 4 Anne, c. 9, § 1, upon which the modern doctrine of promissory notes is founded, which declares that the money mentioned in such note shall be construed to be due and payable to such person to whom the same is made payable, should be held to prevent the principal from maintaining an action in his OAvn name on a note not negotiable, where the nominal promisee is an agent. Nor, even if it may be sued by’ a principal in his own name, does it present the case of a note payable to A. or to B., as claimed by the defendant, which has been held bad as a promissory note. — Osgood v. Pearsons, 4 Gray (Mass.) 455. Here, there is in fact but one payee, Phelps being merely the representative of the plaintiff.”

The above principles were recognized by this court in Birmingham Matinee Club v. McCarty, 152 Ala. 571, 44 South. 642, 13 L. R. A. (N. S.) 156, 15 Ann. Cas. 237.

Ordinarily the assignee of a non-negotiable note simply steps into the shoes of the payee of the note and takes the note subject to all the rights and equities which were attached to the note, and to all the defenses which existed against the note in the hands of the payee. The non-negotiability of the note gives, under ordinary circumstances, notice to the assignee of the note of such rights, equities, and defenses. The assignee of such a note “acquires only the title which his indorser had, and takes the paper subject to all equities and defenses existing against it in the hands of his assignor.” — 4 Am. & Eng. Encyc. Law (2d Ed.) 156; Wettlaufer v. Newton J. Baxter, 137 Ky. 362, 125 S. W. 741, 26 L. R. A. (N. S.) 804.

By no stretch of the imagination can it be held that as between her and her husband, Mrs. Brooks, was not in law and in equity, if the allegations of the bill are true, the owner of the lease and the notes when they were assigned to Greil Bros. Company. When Greil Bros. Company obtained the notes it obtained them, if the allegations of the bill are true,' impressed with all the legal and equitable rights which resided in Mrs. Brooks while they were in the hands of her husband. If the allegations of the bill are true, Greil Bros. Company stands in the shoes of the husband, and possesses no greater rights in or about the notes and lease than did the husband on the day. that he made the transfer, and this, because of the nonnegotiability of the notes.

(3) 1. The best accepted doctrine with reference to the mere latent equity of a third party in a nonnegotiable instrument seems to be that such an equity is lost when such an instrument is assigned, for value, and the assignee has no notice of such equity at the time he acquires it.

“The law does not require that the assignee for value of a thing in action shall take it subject to the latent equities of third persons, of which he has no- notice, but only that the assignment shall be subject to- the equities existing in favor of the debtor.” — Wright v. Levy, 12 Cal. 257; Silverman v. Bullock, 98 Ill. 11; McConnell v. Weinrich, 16 Pa. 365; Tison v. People’s, etc., Ass’n, 57 Ala. 323; Goldthwaite v. National Bank, 67 Ala. 549; 2 Am. & Eng. Ency. Law (2d Ed.) 1081, and notes.

(4) 2. In this state an undiscovered principal can always sue on a contract made by an agent for his benefit. — Bell v. Reynolds & Lee, 78 Ala. 511, 56 Am. Rep. 52.

(5) 3. It is also true that a third party, in order to avail himself, at the principal’s suit, of any equities as against the agent, must be able to show that he did not know, and had no means of knowing, that the party with'whom he was contracting was a mere agent in the transaction. — 1 Am. & Eng. Ency. Law, p. 1171.

(6) 4. It would seem from the above that the bill in this case contains equity. If Greil Bros. Company can show by its answer, and by the evidence in support of it, that it acquired the notes described in this bill in such a way as that, in equity, it is entitled to protection against the claim of appellant, the burden is cast upon it of doing so. It may be that Mrs. Brooks has so conducted herself with reference to this matter as that in equity she is not entitled to consideration. On the face of the papers she is entitled to recover.

We are not here dealing with a case in which a mere landlord’s lien has been destroyed. We are dealing with the question as to whether the agent, Mr. Brooks, has sold nonnegotiable instruments which belonged to his wife, and Avhich he, the agent, had taken in his own name instead of that of his principal and conferred upon his assignee a good title, as against his principal, to the said nonnegotiable instruments. The presumptions of the law are with the principal, and the burden is upon the assignee to show that it is entitled to protection. If the assignee can show that “it is, in equity, entitled to protection,” a court of equity will afford it to him.

The decree of the court below is reversed, and the cause is remanded for further proceedings in accordance with this opinion.

Reversed and remanded.

Anderson, C. J., and McClellan and Somerville, JJ., concur.