Kennedy v. Hudson

The suit grew out of the indorsement of a promissory note and the assignment of an alleged mortgage on real property securing the same.

The assignment of Hudson to Kennedy, indorsed on the mortgage, was "for and in consideration of the sum of Twelve Hundred and fifty dollars to me this day in hand paid by A. M. Kennedy, the receipt of which I do this day acknowledge and I do hereby transfer and assign to the said A. M. Kennedy that certain debt, note and mortgage, as herein described, and for the same consideration and without recourse on me, I do hereby grant, bargain, sell and convey unto the said A. M. Kennedy their heirs and assigns all of my right, title and interest in and to the real estate described in the within mortgage"; and duly acknowledged before a notary public. It is not ambiguous, and included the note and mortgage on like consideration and limitation. However, the evidence, if it be looked to on this point, supports the same intention and result. The note is: "Endorsements: For value received I hereby transfer this note to A. M. Kennedy. R. F. Hudson. Extended 12 mos to 12/28/28." This notation of extension we judicially know to have been "December 28, 1928," and will be taken and considered with the indorsement on the mortgage. The sale, conveyance, and assignment were one transaction, and are considered together in the ascertainment of the true intent of the contracting parties. The transfer of the note and mortgage was qualified. Section 9064, Code; Shows v. Jackson, 215 Ala. 256,110 So. 273; Faulkner v. Fowler, 201 Ala. 685, 79 So. 257.

Did or did not this indorsement and transfer of the note or mortgage import and vouch for the genuineness of same?

The suit was for recovery of the price paid for the transfer and assignment of the non-negotiable chose in action, and the pleading was in short with leave to give in evidence all matters that may be specially pleaded. There are citations in briefs of counsel to the Negotiable Instrument Act. Sections 9064, 9091, 9141, Code. The due date of the instruments in question was December 28, 1924, and the transfer and assignment was of date of March 5, 1926. If the cited sections of the Negotiable Instrument Act be laid out of consideration as to said transfer and assignment of said choses in action, for that the transfer was after the law day thereof, and as not affecting the right of transferor and transferee, the general rule of the transfer of such instruments would prevail in the absence of statutory provisions. Many authorities are collected by Mr. Brannan in support of his observation that "this act does not affect the rights of parties to non-negotiable instruments." Brannan's Negotiable Instruments Law Ann. p. 1.

The provisions of our statute, section 9226 et seq., Code, that relate to assignments of non-negotiable instruments, "Liability and Mode of Charging Indorsers or Assignors of Bills and Notes or Contracts Not Negotiable," contain the provisions that all contracts assigned by writing which are not governed by the commercial law, when the amount due exceeds $100, in order that the indorser or assignor be charged, suit must be brought against the maker to the first court to which suit can be properly brought after making the indorsement or assignment (section 9226, Code); unless suit is waived by written consent (section 9227, Code); or there is the required statutory excuse for not suing "the maker" (section 9228, Code); and the provision that all assignments or indorsements in the writing "of contracts" which are not governed by the commercial law, "whether regular or irregular, must be construed as within the meaning of the last three sections, unless the contrary clearly appears from such assignment or indorsement" (section 9229, Code); and all bonds, contracts, and writings for the payment of money or other thing, or the performance of any act or duty, are assignable by indorsement so as to authorize an action thereon "by each successive indorsee." Section 9231, Code.

If we may look to the rule of law generally obtaining in such matter, it may be noted that in Brannan's Negotiable Instruments Law (4th Ed.) p. 605, is the observation:

"The right of the purchaser of a worthless or unenforceable instrument to rescind the purchase for fraud, misrepresentation, or mutual mistake of fact is independent of his right against the seller on an implied warranty. It depends on common-law principles of rescission, and may exist on grounds which do not create any liability for implied warranty under sec. 65, just as the similar right of the purchaser of a chattel to rescission for fraud, misrepresentation, or mistake, is not coextensive with his remedies under the Uniform Sales Act upon implied warranties.

"(a) The transferor by delivery of a forged note is not released from liability as warrantor by the act of the transferee in receiving interest from the alleged maker and extending the note, without the consent of the transferor, all the parties being still in ignorance of the forgery. Cluseau v. Wagner, 126 La. 375, 52 So. 547. [We interpolate this was under the statute, Civil Code La. Art. 2646.]

"Where a check on which the payee's indorsement was forged has been several times transferred by indorsement, each indorsee may recover from his immediate indorser. Main St. Bk. v. Planters' Nat. Bank, 116 Va. 137, 81 S.E. 24. The court cited sec. 65, but as the indorsements were unqualified, it should have cited sec. 66.

"A dealer in real estate who sold to the plaintiff forged notes indorsed in blank by the payee was liable on an implied warranty of genuineness if he sold the paper as owner or as agent of an undisclosed principal, even though the defendant was ignorant of the forgery and made no representations to the plaintiff. Hunt v. Sanders, 288 Mo. 337, 232 S.W. 456."

The rule of general authorities is thus stated in 2 Rawle C. L. p. 627, § 37: "Even where the words 'without recourse' are added in an assignment of a chose in action, there still remains an implied warranty that the right transferred is what it purports to be, namely, that it is a valid and genuine obligation of the parties, based on adequate and sufficient consideration, and that the amount of money it calls for was owing, and unpaid at the time of the assignment. For the same reason the assignment of a right of action implies a warranty that it was not invalid in its inception by reason of its having been procured through fraud and deceit, and that it is not affected with usury. Since a warranty of title is implied on the sale of a non-negotiable chose in action, the assignee, if it is a nullity, is entitled to recover the price, although the seller was innocent of any fraud, and ignorant of the defect."

The general statement in 4 Cyc. page 82 is: "In the absence of an express warranty, the assignor of a chose in action, for a valuable consideration, impliedly warrants to the assignee that the chose assigned is a valid, subsisting obligation in his favor against the debtor to the extent to which it purports to be such. If the assigned chose is invalid then the warranty is broken as soon as it is made, and the assignee need not wait until the maturity of the chose, but may sue the assignor thereon at once, and need not return the assigned chose. The measure of the assignee's damages for breach of such warranty is, generally, the amount he paid the assignor for the chose."

The decision in Young v. Perry, 187 Ala. 122, 65 So. 817, 52 L.R.A. (N.S.) 1146, contains excerpts to like effect, from 2 Randolph's Comm. Paper, § 913, and 2 Daniel's Neg. Instr. § 1314. See, also, vol. 1, § 675.

Such is the rule in Georgia, Illinois, Iowa, Kentucky, New York, and Vermont. The rule in Pennsylvania, Virginia, and West Virginia is to the effect that, if the assignment is without recourse, no warranty will be implied. Flynn v. Allen, 57 Pa. 482; Crawford v. McDonald, 2 Hen. M. (Va.) 189; Houston v. McNeer, 40 W. Va. 365, 22 S.E. 80.

The text of 5 Corpus Juris, pp. 968, 970, and 971, supported by many authorities, is:

"Where the assignment is without recourse, according to some authorities, no warranty of title or genuineness is implied, and, in the absence of fraud, the assignor is not liable to the assignee; but in other cases it has been held that the assignor without recourse is liable upon an implied warranty that the chose is a valid and subsisting debt, and that the only effect of the qualification of his assignment is to relieve the assignor from responsibility for the solvency of the debtor."

"In Maxfield v. Jones, 106 Ark. 346, 350, 153 S.W. 584 (where the written contract of assignment stated in express terms that the assignment was 'without recourse' on the assignor, and that it was a transfer merely of all of the right of the assignor in and to the claim. 'This form of assignment relieved the assignor of any liability to plaintiffs for the failure to realize on the claim'); Coffman v. Allin, Litt. Sel. Cas. (Ky.) 200; Flynn v. Allen, 57 Pa. 482; Crawford v. McDonald, 2 Hen. M. (12 Va.) 189."

See Strong v. Leoffler, 85 Ill. 73, a tax receipt that was forged; Hunt v. Burk, 22 Ga. 129, illegal contract; Tyler v. Bailey, 71 Ill. 34, counterfeit land warrants; McCormack v. Reece, 3 G. Greene (Iowa) 591, subscriptions for street improvements; Winstell v. Hehl, 6 Bush 58, assigned lease; Emmerson v. Claywell, 14 B. Mon. (Ky.) 18, 58 Am. Dec. 645, assigned bond; Hunt v. Armstrong, 5 B. Mon. (Ky.) 399, assignment of notes; Kingsley v. Fitts, 55 Vt. 293, on sales account; Gilchrist v. Hilliard, 53 Vt. 592. 38 Am. Rep. 706, sales account warranted genuine; Wait v. Williams,107 S.C. 32, 91 S.E. 969, note and mortgage; Sanford v. Weller (Tex.Civ.App.) 189 S.W. 1011; 4 Cyc. 82; R. C. L. (Perm. Supp.) p. 522, § 36.

In Wait v. Williams, 107 S.C. 32, 91 S.E. 969, 970, the court observed:

"An assignment of a chose in action, without recourse, relieves the assignor of the general liability of an indorser; but, in the absence of any further limitation of his liability, he is liable upon the implied warranties of a vendor, who impliedly warrants that the thing sold is what it purports to be — in this instance, that the note and mortgage were valid subsisting legal obligations for the amount called for by the note, and the property described in the mortgage. Strange v. Ellison, 2 Bailey [S.C.] 385; Hall v. Latimer, 81 S.C. 90,61 S.E. 1057; Bank v. Speegle, 91 S.C. 13, 74 S.E. 40. But there is no implied warranty of the solvency of the mortgagor, or of the value of the property described in the mortgage. The law is stated in 2 Rawle C. L. at page 627:

" 'Even where the words "without recourse" are added in an assignment of a chose in action, there still remains an implied warranty that the right transferred is what it purports to be, namely, that it is a valid and genuine obligation of the parties, based on adequate and sufficient consideration, and that the amount of money it calls for was owing and unpaid at the time of the assignment.'

"The authorities cited in the note fully sustain the text. See especially the case of Trustees v. Siers, 68 W. Va. 125,69 S.E. 468, Ann. Cas. 1912A, 924, and the authorities cited in the principal case, and the note reviewing the authorities."

In Griel v. Lomax, 86 Ala. 132, 135, 5 So. 325, 326, the action was for money paid on the purchase of an interest in land. The court said: "The contract purports on its face to be nothing more than the transfer and assignment by Griel to Lomax and his associates of all of the assignor's 'right, title, and interest' in a certain piece of real property, which one Moses had contracted to sell and convey to said Griel and two other named persons as his co-vendees. There are no words of warranty used, and no covenant of seisin or of future enjoyment is stipulated for in the contract of assignment. Where this is the case, the rule is the same in the sale of an interest in land as of goods, where the vendor is out of possession. The doctrine of caveat emptor applies, and the buyer, having neglected to protect himself by a warranty, in the absence of fraud, will be held by the court to have purchased at his peril." This rule was again applied in Carrier v. Eastis,112 Ala. 474, 20 So. 595.

And in Commercial Credit Co. v. Ward Son Auto Co., 215 Ala. 34,109 So. 574, the action was under section 9064, Code, and dealt with a negotiable instrument before law day, and held that the transferor warrants that antecedent parties are legally capable of binding themselves. 8 C. J. 395, § 583.

In Birmingham Nat. Bank v. Bradley, 103 Ala. 109, 119,15 So. 440, 49 Am. St. Rep. 17, the check was forged and the indorser held as guarantor of its genuineness; and Bankhead v. Owen,60 Ala. 457, held that the transferor of a note by delivery implies an obligation to answer for the genuineness of the same. Young v. Perry, supra.

It would appear that the weight of authority in this and other jurisdictions, both parties being ignorant of the fraud and forgery in the making of said instrument, would support the holding that the transferor of the forged note and mortgage is liable for their genuineness, and therefore for the purchase price, if rescission is seasonably made.

The provisions of section 9226 et seq. of the Code do not change the result by reason of the failure to sue at an earlier date, etc. Here there was no contract to be sued on and no maker to proceed against at the first term of the court. There is no laches shown to defeat recovery.

The judgment of the circuit court is reversed and one here rendered for the plaintiff.

Reversed and rendered.

ANDERSON, C. J., and SAYRE and BROWN, JJ., concur.

On Rehearing.