Lock v. Citizens' Nat. Bank , 1914 Tex. App. LEXIS 123 ( 1914 )

HENDRICKS, J.

This suit was filed by the appellee, the Citizens’ National Bank of Plainview, Tex., in the county court of Hale county, Tex., against C. E. Lock and F. M. Lock, the appellants, on a promissory note payable to the order of G. A. Henderson, which was negotiated by Henderson to the appellee bank. The appellants claim that the note was procured by fraud, of which appel-lee had full knowledge, was without consideration, and was in contravention of the antitrust' laws of the state. The trial court, after the close of the evidence, instructed the jury to find for the plaintiff against the defendants Lock for the principal and interest of the note and 10 per cent, attorneys’ fees.

At the time of the execution of the note, a written contract was executed by G. A. Henderson and C. E. Lock and F. M. Lock, by the terms of which the Locks were ostensibly appointed as sole and exclusive agents for the sale of a combined educational chart, drawing board, and writing desk, in Smith county, Tex., from the 14th day of December, 1911, to August 9, 1917, in consideration of the agents purchasing from Henderson 36 of said articles at $8.50 per chart, to be delivered f. o. b. Muneie, Ind., and to be shipped to Lock & Son within 30 days from the date of the contract; the said Henderson granting to the said Lock & Son an equal right with Henderson and his other agents to have all orders filled by the manufacturer at Muneie, Ind., according to the manufacturer’s contract with Henderson at the wholesale price of $1.50 per chart. Besides the exclusive agency for the sale of the charts in Smith county, Lock & Son were granted another agency with equal privilege with Henderson and his other authorized agents, to sell said chart in the counties of Hale, Swisher, Floyd, and Briscoe, for the same period of time. Aside from the written contract, as abbreviated above, appellants testified, in substance, that Henderson orally represented that as to the Panhandle counties named no other person would have any right to sell the chart in that territory and that no other person would be able to purchase the same chart except from him (Henderson), the latter claiming absolute control over the sale of the same, that none of the agents were permitted to sell the charts for less than $8.50 each and stated that they were constructed out of the best oak wood; however, testifying that they read the contract and the note and signed the same. ’ The appellants stated that the 36 charts received by them were made of inferior material, and that in attempting to sell the charts in some of the Panhandle territory it developed that they were in competition with other charts listed by a mail order house at $2.75, which, with the freight added, would have made the chart cost in that territory $3.25, and, because other firms were selling the same chart in other territory for less money, the particular contract to them was worthless. At the time the written contract and the note were executed, O. E. Lock addressed a letter at the solicitation of Henderson, to the Citizens’ National Bank, the appellee, as follows: “I have this day made one note, payable to G. A. Henderson, for $306.00, due November 15, 1912. Will be agreeable with me for you to take up my note.”

[1,2] When Henderson negotiated the note to the bank, he presented the letter, and the bank discounted the note about 10 per cent., and we infer from the record that this transpired within a short time after the execution of the note and contract. The president of the bank testified that he had an idea that the note purchased was given for school supplies; that an agent of Henderson, selling charts for him, was staying at his house at that time; that he knew nothing of any statements made to Lock by Henderson, and, as we construe, tbe record, tbis is tbe only knowledge of any fact in connection witb tbe transaction possessed by any officer of tbe bank. Appellants contend that tbe discount is such, coupled witb tbe purchase of tbe note in suit from a stranger, and tbe knowledge of tbe bank fhat O. E. Lock, the father, was solvent, was such constructive notice as to put tbe bank upon inquiry. The case of Oppenheimer et al. v. Farmers’ & Merchants’ Nat. Bank, 97 Tenn. 19, 36 S. W. 705, 33 L. R. A. 767, 56 Am. St. Rep. 778, by tbe Supreme Court of Tennessee, cited by appellant upon another proposition, is authority against tbe contention. It is true that tbe real amount of tbe consideration in some cases and under some circumstances is important in determining good faith and constructive notice in tbe purchase of negotiable paper. Tbe amount paid by a purchaser of paper executed by a solvent maker may be so disproportionate to tbe face value of the security, and especially so if bought from a stranger, which would imply' a .guilty knowledge, or a willful ignorance of facts, in connection witb tbe execution of tbe paper which could have been ascertained by reasonable inquiry. However, it is uniformly held that tbe rule does not require tbe full face of tbe paper to be paid in its purchase, and a contrary principle would not only deprive commercial paper of one of tbe most essential and valuable incidents of negotiability—that is, the sale of same—but necessarily affect tbe business and commerce of the country. King v. Doane, 139 U. S. 166, 11 Sup. Ct. 465, 35 L. Ed. 87.

Tbe officers of tbe bank testified that they relied upon tbe letter in tbe purchase of tbe paper. It was some time after tbe execution of the contract and tbe negotiable paper in question that the Locks received tbe shipment of the charts purchased. If tbe paper had been sold to the bank prior to tbe delivery of the charts and tbe bank had inquired of the Locks, what information would they have received as to any fraud between tbe Locks and Henderson? Tbe Locks bad none until they received the charts and attempted to sell tbe same. We necessarily overrule tbe assignment insisting upon tbis contention.

[3] Neither do we think that it is sufficiently shown that the note, as a part of the contract, is in violation of the anti-trust statute of this state. This contract has the usual earmarks of a sale of the exclusive right to vend a patented article throughout a specified district, especially as to Smith county. The Locks testified that Henderson informed them that the article was patented, and if so the evidence suggests that Henderson assumed to control it. The object of tbe patent law is monopoly, “and the rule is, with few exceptions, that any conditions which are not in their very nature illegal with regard to this kind, of property, imposed by the patentee and agreed to by the licensee for the right to * * * sell the article, will be upheld by the courts. The fact that the conditions in the contracts keep up the monopoly or fix prices does not render them illegal.” Bement & Son v. National Harrow Co., 186 U. S. 91, 22 Sup. Ct 755, 46 L. Ed. 1069.

[4] A contract of the character indicated by tbe quotation was held by that court as not void as an unlawful restraint on interstate trade or commerce and was not forbidden by the act of Congress on that subject.

The iSupreme Court of Texas held, in the case of Albertype Co. v. Gust Feist Co., 102 Tex. 219, 114 S. W. 791, that where the former agreed to sell the latter 2,000 copies of souvenir albums, and further agreed not to sell any of said albums in tbe city of Galveston for one year to any other person, where tbe articles were to be manufactured in a foreign state and shipped into this state, was not a contract in contravention of our antitrust statute for tbe reason that tbe transaction under consideration constituted interstate commerce, and such commerce is not subject to tbe anti-trust laws of this state. Tbis contract seems to contemplate tbe right of the Locks to purchase charts at a certain price, to be manufactured at Muncie, Ind., witb which the said Henderson had another contract providing for the sale and manufacture of same. If it were not a patented article, we are inclined to think that interstate commerce is such a salient feature of the contract as that the Supreme Court case cited would apply to this record.

[5] The appellants also contend that if there was fraud between.the maker and the original payee, and the note was fraudulently put into circulation, the bank as an innocent holder should be limited in its recovery to the amount that it paid for the note with interest and attorneys’ fees on that amount, and cite the following cases in support of the contention: Sperlin v. Peninsular L. & D. Co., 103 S. W. 232; People’s Nat. Bank v. Mulkey et al., 61 S. W. 528; Oppenheimer v. Farmers’ & Merchants’ Bank, 97 Tenn. 19, 36 S. W. 705, 33 L. R. A. 767, 56 Am. St. Rep. 778; Campbell v. Brown, 100 Tenn. 245, 48 S. W. 970. Tbe .two latter are Tennessee cases. Daniel on Negotiable Instruments asserts tbe same doctrine, witb a conflict of authority, though by tbe different courts of tbe country on tbe question. The Supreme Court of this state, however, in the case of Petrie & Bro. v. National Bank, 83 Tex. 427, 18 S. W. 752, 29 Am. St. Rep. 657, adopted the rule on this subject declared by the Supreme Court of the United States in the case of Cromwell v. Sac County, 96 U. S. 60, 24 L. Ed. 681: “A purchaser of negotiable security before maturity, in cases where be is not personally chargeable with fraud, is entitled to recover its full amount against its maker, though he may have paid less than its par value, whatever may have been its original infirmity.” The same question again arose in the case of Petri & Bro. v. Fond du Lac Nat. Bank, 84 Tex. 212, 20 S. W. 777, and was again decided in the same manner.

We are unable to grasp the distinction between paper fraudulently put in circulation and any other fraud in connection with the execution of negotiable paper as to the rights of an innocent holder who has paid value without notice. There are cases, of course, where a negotiable note has been fraudulently put in circulation, in which, with reference to the inception of the paper and circulation of same, the holder, although innocent, has not any rights whatever; but such eases are not applicable here. The rule of the Supreme Court of the United States, followed by our court, is based upon what is considered as the better policy as an aid to commerce in the use of such paper as an evidence of credit in substitution for actual money. Our Supreme Court having adopted the rule, we are concluded by its decision.

[6] The appellants insist that the evidence did not justify a peremptory instruction for the attorneys’ fees, because that feature of the note is merely a contract of indemnity. Our Supreme Court, in the case of First National Bank of Eagle Lake v. Robinson, 135 S. W. 372, concludes the appellant on this question. There is an absence of plea and proof in this ease by the appellants that the attorneys’ fees agreed upon in the note are unreasonable, or unconscionable; hence “the court is authorized to act upon the amount of such fees as agreed upon by the parties and enter judgment accordingly.” Upon the above consideration of this record, the cause having been decided upon its merits, it is unnecessary to pass upon the question of the result of a failure to except to a charge of the court, where the instruction to the jury is peremptory.

We conclude that the action of the trial court was correct, and the judgment is in all things affirmed.