Coykendall v. . Constable

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] If the note upon which this action is founded was not paid, its makers were liable unless those of them who were sureties became freed from their obligation by reason of some act which changed their contract or imperiled their rights. The referee does not find such payment as a fact, nor as an inference from the facts ascertained. Indeed, it is difficult to see how any such inference could have been possible from the proof. Whatever may be true as to the want of authority to sell the note, in the bank which received it for collection, it is quite certain that the transaction between the plaintiff and the collecting agent was a sale, or an entirely void proceeding. It could not be transformed into a payment in hostility to the expressed intentions of both parties who acted in the transfer. There was a sale, or an attempt at a sale which utterly failed, but never a payment; and an erroneous supposition by Peters, the payee, as to the fact which produced the money, traceable to his ignorance of the truth, cannot alter the nature of that truth. The note then, being unpaid, is due from the makers to some one, and must be payable to Peters or the plaintiff. The only concern of the defendants, if the rights of the sureties have not been infringed, is to know to which of two parties they may safely pay the debt. If they had paid it voluntarily to plaintiff, could Peters, after full knowledge of the situation and with the plaintiff's money in his pocket and persistently retained, successfully sue upon it as owner? It is quite certain that he could not. He would be unable to produce the note, and could not force it from plaintiff's possession without return of the purchase-money, and while keeping that would be obliged to admit that he held it as a payment of the note or consideration of its sale, and either alternative would be fatal to his cause of action. The defendants thus can pay the debt which they have not paid to the plaintiff as its holder with entire safety and without danger of being liable to Peters. Why then should they not pay it? If the transaction had been found to be, or shaped upon competent proof as, an advance by plaintiff to DeGarmo, the maker, of the money necessary to pay the note, the successful defense would have been payment; but, when nothing of the kind was either done, or intended, or found as a fact, and the note remains unpaid, why should not its makers pay it? It is not claimed that the sureties directed or required its collection, or put the owner, whoever he might be, under a duty to enforce it. Their contract was not changed. They promised to pay to Peters or bearer, and the plaintiff is the bearer, and comes to them with that title and in accord with their contract. They agreed that the note might be sold when they made their contract negotiable. No right of theirs was violated and they suffered no injury. If they desired the note promptly sued they could say so as well to plaintiff as to Peters, or pay it and take their remedy against DeGarmo. Their sole defense, therefore, was that which prevailed with the referee; that the bank had no authority to sell, and so plaintiff got no title. Undoubtedly Peters might have repudiated the act of his agent when he learned what it was. The moment he became possessed of that knowledge, he was bound in common honesty to return the money paid him by mistake, or retain it as it was given to his agent. The law will not endure that he shall keep the product of the agent's act and yet repudiate his authority. Even in a case of fraudulent representations by the agent, never at all authorized or suspected by the principal, a reception and retention of the proceeds may make the latter responsible for the fraud. (National Life Ins. Co. v. Minch, 53 N.Y. 144; Hathaway v.Johnson, 55 id. 93.) No wrong or violence is done to the rights of Peters by the process. His agent obtained plaintiff's money by a pretended sale of the note in excess of the authority conferred, and Peters knows it. If then he keeps the money and avails himself of the fruits of the unauthorized act, he cannot be allowed to repudiate it. But he does not repudiate it, or attempt to do so. He sets up no claim to the note, and says only that he wanted the money and did not care how he got it; that is, whether by a sale or a payment. The fact then that the note was not paid, and he knew it, although for a time he thought that it was, followed by his continued retention of the money, his omission to demand the note or assert any title to it, admit of no other interpretation than a ratification of the sale. It is all the more easily inferred because his interest lay in that direction. It made the money in his possession lawfully his, and took him wholly out of the controversy. It is just to the plaintiff who parted with his money as purchaser and upon the faith and credit of the note. It does no injustice to the sureties, for they have no equity to be discharged without payment. Circumstances might have occurred which would have entitled them to a release. Possibly if they had been lulled into a false security by information and a consequent belief that the note was paid, and due to the silence and delay of the purchaser, the principal in the mean time becoming insolvent, some just ground might exist for their discharge. But nothing of the kind is in the case. No such defense is pleaded, and no suggestion made of any injury resulting from the sale. The evidence shows that Terwilliger, one of the sureties, was notified of a proposed transfer, and not only did not object but promised to see his associates. They say only that they never consented to a sale. They do not say that they were not notified of an intended transfer; and since they make no complaint, either in the pleadings or the proof, that they have been misled or harmed by the transaction treated as a sale and ratified as such by Peters, there is no injustice done to them. Certainly they have no equity to compel the plaintiff, in hostility to his intention and against his will, to pay their note for which he was in no manner bound.

We find no difficulty, therefore, in applying to the case the doctrine of ratification. Coykendall made the purchase before he had seen the note or the indorsements upon it. Peters knew the whole truth, at least when examined as a witness on the trial, and instead of repudiating the sale said only that he got the money for his loan, "and that was the end of it."

The cases cited by the respondent are not inconsistent with our view of the transaction. Some of them were founded upon statutes relating to corporations, and making certain transfers void because illegal. (Gillet v. Phillips, 3 Kern. 114; Houghton v. McAuliffe, 26 How. Pr. 270.) In one of them the agent of the payee did not sell or intend to sell the note, and nothing was said which necessarily gave him notice of a different intention on the part of the person taking the note. (Burr v. Smith, 21 Barb. 262.) Beyond the cases cited, our attention has been incidentally drawn to one which tends, in many respects, to justify the contention of the respondents. (Fuller v.Bennett, 21 N.W. Rep. 433.) It is observable, however, that the question of payment arose, and upon a very debatable state of facts; and also that the payee never knew that his note was not paid until five years after the money was received, and when the situation of the parties had been changed by the intervening death of the maker. Our great respect for the learned judge who wrote the opinion has caused us to give additional reflection to the views we have expressed, but has not shaken our conviction that in this case the title of the plaintiff to the note sued upon was good.

The judgment should be reversed and a new trial granted, costs to abide the event.

All concur.

Judgment reversed.