Winter v. Bullock

By the Court.

Warner, J.

delivering the opinion.

The error assigned upon the record to the decision of the Court below is, the sustaining the general demurrer to the complainant’s bill.

The complainant discounted a promissory note given by Morrison & Harrison to the defendant, Bullock, for two race horses, Kite and Southerner, for the sum of $2,900, for the benefit of Bui lock. The complainant gave the defendant, Bullock, in payment for the note, a draft on Starke & Pearce, of Fayetteville, North Carolina, for $1,400, at three months, and paid him the balance therefor in money. The defendant, Bullock, instituted suit on the draft against the complainant, V/inter, in the Superior Court of Muscogee County, to recover the amount thereof: whereupon, the complainant filed his bill, praying for discovery and relief, and that the suit at law be enjoined. The complainant alleges, that at the time of the sale of the horses by Bullock to Morrison & Harrison, he warranted them to be sound, whereas one of them (Southerner) was wholly unsound and worthless, which fact was known to Bullock.

The complainant also alleges, that he instituted suit on the note purchased by him from Bullock, against the makers, Morrison & Harrison, who plead thereto a partial failure of consideration, in consequence of the unsoundness of the horse Southerner, and on the final trial of the cause, the plea was sustained and a verdict rendered in his favor for only one half of the amount of the note; and that he has no means of proving the fact that said draft was delivered by him to said Bullock, upon the consideration and in the manner before stated, except by a discovery from said Bullock in Chancery. The complainant also alleges, that at the time of his discounting the note of Morrison & Harrison, for the benefit of Bullock, he had no knowledge of the existence of the warranty of the soundness of the horses, made by Bullock to them.

[1.] The complainant’s equity then is, that the defendant transferred to him, by delivery, the note of Morrison & Harrison, for a valuable consideration, and concealed from him the fact of his knowledge of the unsoundness of the horse Southerner, and also concealed from him another fact, within his own knowledge, that he had warranted the horse to be sound, by means whereof the makers of the note were enabled, successfully, to maintain their plea of partial failure of consideration to the action instituted by him thereon against them. Will the facts relied on by the complainant entitle him to the discovery and relief sought by his bill? We think they are sufficient for that purpose, and that the Court below erred in its judgment in sustaining the demurrer.

A party who transfers a promissory note by delivery, for a valuable consideration paid him therefor by the transferee, is not exempt from all obligations or responsibilities. In the first place, he warrants by implication, unless otherwise agreed, that he is a lawful holder, and has a just and valid title to the paper, and a right to transfer it by delivery. He impliedly warrants that the instrument is genuine, and not forged or fictitious. He also warrants, in the same manner, that he has no knowledge of any facts which prove the instrument, if originally valid, to be worthless, either by the failure of the maker, or by its being already paid, or otherwise to have become void or defunct; for any concealment of this nature would be a manifest fraud. Story on Promissory Notes, 123, §118. There can be no doubt that if a man assign a bill for any sufficient consideration, knowing it to be of no value, and the assignee be not aware of the fact, the former would, in all cases, be compellable to repay the money he had received. Chitty on Bills, 6th edition, 146. In Fern vs. Harrison, (3 Term Rep. 759,) Lord Kenyon held it to be extremely clear, that if the holder of a bill send it to market without indorsing his name upon it, neither the morality or the laws of the country will compel him to refund the money for which he has sold it, if he did not know at the time that it was not a good bill. If he knew the bill to be bad, it would be like sending out a counterfeit into circulation, to impose upon the world, instead of the current coin, and the party receiving the money, with such knowledge, would be obliged to refund it See, also, Young vs. Adams, 6 Mass. R. 186. Martin vs. Morgan, 5 English Com. Law Rep. 87. The defendant, Bullock, at the time lie transferred tlie note to the complainant and received the consideration for it, knew that oti& of the horses for which the note was given was unsound and worthless; and he also knew that he had warranted both the horses tobe sound, but concealed these facts from the complainant, who had no knowledge of them. At the time of the transfer of the note by the defendant to the complainant, he knew that only one half of the consideration for which said note was given was valid and recoverable in law, and that the other half of the consideration of the note was void and worthless, and not recoverable by the complainant, who discounted it after its maturity. Such knowledge and concealment, on the part of the defendant, was a manifest fraud upon the rights of the complainant. The parties did not deal on equal terms. The true definition of undue concealment, which amounts to a fraud, for which a Court of Equity will grant relief, is stated by Mr. Justice Story to be, “ the nondisclosure of those facts and circumstances which one party is under some legal or equitable obligation to communicate to the other, and which the latter has a right, not merely in Joro conscientice, but juris et de juré, to know.” 1 Story’s Equity Jurisprudence, 216, §207. In Belcher vs. Belcher, (10 Yerger’s Rep. 121,) it was held, that fraud, in a Court of Equity, properly includes all acts, omissions, and concealments, which involve a breach of either legal or equitable duty, trust or confidence, justly reposed, and are injurious to another, or by which an undue or unconscientious advantage is taken of another. We have already shown,that the concealment of the unsoundness of one of the horses for which the note was given, and the warranty of soundness, by the defendant, when he transferred the note to the complainant, was; a breach of his legal duty, and consequently gives to the Court of Equity jurisdiction of the cause.

Let the judgment of the Court below, sustaining the demurrer’ to the complainant’s bill, be reversed.