author: Spear, J.

text:
    Kitchen v. Loudenback.

      Promissory notes — Purchaser before due, for value, Who is — Good faith— Practice.

    1. A judgment will not be reversed for error in sustaining a demurrer to a defense, where the defendant does not stand upon such defense, but so amends his answer that upon the trial he has the benefit of all the averments of the original defense.
    2. If, in the absence of a bill of exceptions setting out the evidence, any state of the evidence, consistent with the pleadings, would justify the verdict and the judgment of the court rendered thereon, a reviewing court will presume, in support of the judgment, that such evidence was given.
    3. In an action on a negotiable promissory note, when it appears that the plaintiff is a purchaser before due, for value, in the usual course of trade, it is not sufficient as a defense to show that he took the note under circumstances that ought to have excited suspicion in the mind of a prudent and reasonable man. To constitute a defense the proof must show that, in purchasing the note, he acted in bad faith, or with a want of honesty. Johnson v. Way, 27 Ohio St. 374, approved and followed.
    4. The indorsee of a negotiable promissory note, who purchases it before maturity, for a valuable consideration, without knowledge of facts Which impeach its validity, may recover the amount due by the terms of the note, although the amount paid was less than the face of it, and although the note was obtained by the payee of the maker by illegal and fraudulent means, unless it appears that there was not power to issue the note, or the circumstances of its inception were such as to make it absolutely void by statute.
    (Decided February. 24, 1891.)
    Error to the Circuit Court of Clark county.
    In the court of common pleas, Loudenback filed a petition against Kitchen in the short form authorized by the code, founding his action upon a promissory note to one E. S. Clark for $420, of which a copy is set out, giving copy of indorsement to him, Clark, which bears date prior to the maturity of the note, and averring that the»note remained wholly unpaid. The defendant, by an amended answer, set up that Clark was the Superintendent of the North American Farmers’ and Planters’ Company for the production of cereals, a company incorporated under the laws of the state of Ohio, and engaged in the business of selling red line wheat, and that the note was given in part payment of fifty bushels of red line wheat, then sold by Clark for seed wheat, which wheat was sown by Kitchen at the proper season, but proved worthless and unsound and did not grow, and became a total loss; also averring that the note was given in pursuance of a scheme by which the company agreed that of the crop grown from the wheat thus sold it would sell for Kitchen one hundred bushels at fifteen dollars per bushel, retaining 33¿ per cent, for its commission, which price was a fictitious, speculative, and gambling price, and the transaction an illegal and gambling transaction ; that the note was given contemporaneous with the giving of a bond by the company to carry out its agreement to sell; that the conditions of the bond were not performed, and their performance illegal and impossible, and that the note was void under the statutes of Ohio. A general demurrer to this defense was sustained, to which defendant excepted. The defendant then amended his answer alleging that the purchase of the note by Loudenback was with knowledge of the illegal, fraudulent and gambling consideration, and of facts which put him on notice of the real transaction, and that defendant paid only $367.50 for it. Plaintiff replied admitting that since the commencement of the action he had learned that the note was given for the consideration named in the second defense, but denied every other allegation, and alleged that he had purchased the note in the usual course of trade before it became due, in good faith, without knowledge of the facts set forth in the answer of any infirmity therein, and paid therefor full value as a good and valid note.
    The record does not give any of the evidence, nor is the entire charge given. It shows that the defendant requested the court to charge the jury, in substance, that if the consideration for the note sued for in this case, was found by it to arise out of the illegal and fraudulent transaction set forth in the second defense stated in the second amendment to the defendant’s answer, that in that case the plaintiff would not be entitled to recover more than the amount paid by him for said note, in case they found that he purchased it in good faith for a valuable consideration and without notice of the consideration for which the said note’was given, including interest on the amount thus paid from the date of payment.
    This instruction thus asked the court refused to give, but after having stated the issues made in the pleadings, upon which the case was tried, further instructed the jury, as follows:
    “ The definition of the terms which I have just used, may aid you in determining the questions in the case. Briefly, if the purchaser pays cash for a note, he acquires it in the usual course of trade for valuable consideration. Before maturity is before a note, by its terms, is due and payable. This note, by its terms, became due and payable April 1, 1886 ; allowing three days of grace, it became due and payable April 4, 1886. Therefore, if you find that the plaintiff paid $867.50 cash for the note, on July 16,1885, to a person authorized to sell it, and obtained the note, the note being payable to bearer, might pass by delivery, but the transfer is not defeated or affected by the indorsement of the payee, Mr. Clark, and the plaintiff would then have acquired it in the usual course of trade for a valuable consideration, and would be entitled to recover thereon, unless it appears from the evidence that he had, at the time, notice of the alleged considerations, already stated and claimed to be in the note, or that he had information which ought to have excited the suspicion of a reasonable man thereto, and having the opportunity, failed and neglected, or refused to inquire thereto, because he was afraid he would thereby learn what he did not want to know. It is not sufficient, if it only appears that he took the note under circumstances that ought to have'excited suspicion in the mind of a prudent and reasonable man, but it must appear that he took the note under circumstances as show he acted in bad faith or with a want of honesty, and in determining whether he so acted, you will look to all the circumstances and the evidence of the fact, if proved, as claimed, that he paid less than its fair and reasonable value for the note.....
    “ If, under all the circumstances, you find the plaintiff acquired and holds the note by purchase in good faith, in the usual course of trade for a valuable consideration, before due, without notice of such infirmities, your verdict will be in his favor for $420, with six per cent, interest to this date. Add together the sum so found, — that is, the interest and principal, — and the whole amount will be his damages.....
    “If you are satisfied that the note was given for seed wheat at fifteen dollars per bushel and that such seed wheat proved worthless as such, then your verdict would be in favor of defendant, provided you further find that Mr. Loudenback had notice of the worthless character of the wheat and of such consideration, or had such notice as to put him on inquiry, and he failed to inquire, solely for the reason that he did not want to know the consideration.”
    The jury returned a verdict for plaintiff for the full amount of the note with interest, and a judgment was thereon rendered, which was affirmed by the circuit court. To reverse these judgments this proceeding in error was brought.

      Keifer Keifer, for plaintiff in error.
    1. Did the court err in sustaining the demurrer to the amendment to the answer setting up a second defense to the petition of the plaintiff below? Was error in sustaining demurrer waived ?
    The circuit court, in its published opinion, (8 Circuit Court Rep. 228,) seems clearly to indicate that it was of the opinion that the common pleas court erred in sustaining this demurrer, but it was of the opinion that Kitchen could not take advantage of such error, because he filed a subsequent amendment setting up another second defense and went to trial on that; also because on the trial of the case the circuit court was of the opinion the law had been properly given to the jury. We controvert both these propositions and deny stoutly that the facts set forth in the record warrant any such conclusions, or that there is any authority to support either of them. To hold that, after a demurrer is sustained to a pleading, the party must submit and make no further effort on any possible grounds, to make a defense, or waive any error the court may have made in sustaining the demurrer, would be absurd and unjust.
    The case of Davis & Co. v. Gray, 17 Ohio St. 331, is cited by the circuit court in support of the proposition. An examination of the syllabus of this case will show nothing on the subject. An examination of the case will show that Judge Brinkerhoff was of the opinion that, where all the averments (and no others of substance) contained in a pleading to which a demurrer had been sustained, were in substance, embraced in an amended pleading, afterwards filed, on which issues were taken, and the party had the full benefit of them in the subsequent progress of the case, that in such case it was immaterial whether the court erred or not, in sustaining the demurrer to the original pleading. This, however, presupposes that the new pleading, on which the case was tried, was not coupled with other averments in the same pleading necessary to be proved in order to make the repeated parts good. In our case an additional averment of notice of value, was set up in the amendment and this was, of substance, entirely new, and with it made the pleading good as against a demurrer even though the court of common pleas was right in sustaining the demurrer to the original second defense. The rule is correctly stated in Knox Co. Bank v. Lloyd, 18 Ohio St. 353.
    We contend that if the court erred in sustaining the demurrer to the original second defense, we were seriously prejudiced thereby. Deery v. Cray, 5 Wall. 796; Moores v. National Bank, 104 U. S. 625; Davis v. Bartlett, 12 Ohio St. 534; McKesson v. Stanbery, 3 Ohio St. 156; Collins v. Gilbert, 94 U. S. 753, 761; Daniels on Neg. Insts., sec. 198, 815, and n. 816-19; Byles on Bills, 223; Monroe v. Cooper, 5 Pick. 412; Todd v. Wick Bros. & Co., 36 Ohio St. 370, 390; Edwards on B. & N. 318-19; Paton v. Coit, 5 Mich. 505; Uther v. Rich, 10 Ad. & E. 784; Tucker v. Morrill, 1 Allen, 528; Sisterman v. Field, 9 Gray 331; 1 Parsons on N. & B. 188-9 and n., 1st ed.; Bliss on Code Pleading, sec. 395; 2 Greenleaf on Evidence, sec. 172. And evidence of fraud or illegality is competent without first offering proof of notice that the holder of a note had knowledge of such illegality or fraud at the time of the purchase. Woodhull v. Holmes, 10 John. 230.
    II. We further submit that the second defense to which the demurrer was sustained, showed the note was based on a gambling consideration, and therefore void under Revised Statute, sec. 4269. Lagonda National Bank v. Portner, 46 Ohio St. 381; Shirey v. Ulsh, 2 Ct. Ct. Rep. 401; Williams v. Keel, 17 Law Bull. 118; see also Daniels on Neg. Insts., sees. 197, 807; Bank v. Prather, 12 Ohio St. 497, 509; Waugh v. Beck, 114 Pa. St. 422; cited also in 17 Law Bull. 171.
    III. We think that the court clearly erred in charging the jury as an abstract proposition, and without qualification, that “ if the purchaser pays cash for a note he acquires it in the usual course of trade for a valuable consideration.” We are aware that this language is loosely used in the case of Todd v. Wick, 36 Ohio St. 370, 392, but we do not think that this sanctifies it into a sound, abstract legal proposition. If it followed that the jury was to understand that the court only meant that the payment of cash for a note, under proper circumstances, gives the purchaser the title to it in the usual course of trade for a valuable consideration, there could be no room for complaint, but an abstract statement of the kind quoted above is wholly misleading and erroneous, and compels a jury to render a verdict, if money or “ cash ” is only shown, to be paid, no matter how, or under what circumstances of notice or knowledge. While it may be true that the court meant that a jury should look over the entire charge and find what it meant by this sentence, we still insist that a jury, in the jury room,, under the instructions, would be driven to reach the conclusion, if the testimony showed that “ cash ” was paid for the note,, that that, and that alone, required it to find the party acquired it in the usual course of trade for a valuable consideration.
    A payment on account of the purchase of a note in any other kind of property than “ cash ” would be as good. Huff v. Wagner, 63 Barb. 215.
    IV. It is also claimed that the common pleas court erred in instructing the jury that “ it must appear that he, (Loudenback,) took the note under such circumstances as show he acted in bad faith or with a want of honesty,” etc. This instruction, taking the connection in which it was used, was equivalent to saying to the jury, that unless Loudenback was found to be a scoundrel in procuring the note, no matter what notice or knowledge he had of its fraudulent and gambling consideration, he could recover on it.
    By this paragraph Loudenback is required to prove, before he can recover, that he acted honestly in acquiring the note without knowledge or notice, if the jury first find that Clark or the person who transferred the note to Loudenback acted fraudulently toward the maker of the note. A man may act honestly and in good faith in the purchase of a note, yet having such notice of equities or defenses existing as will prevent his recovering on it. He may honestly mistake his rights, and still be left without a remedy at law. He might honestly purchase a note, before due, for value, without notice or knowledge of defenses, and yet not be entitled to recover on it because not purchased in the usual course of trade. He may honestly believe there was* no defense to the note, and yet have such notice of the consideration for which it was given as to prevent his recovering thereon. Bad faith on the part of the purchaser in failing to make inquiry, when he has no express notice of the consideration, etc., of the note, may, and often is, the equivalent of such notice, if he has notice or knowledge which, to a reasonable man, would indicate a defect in the note. Daniels on Neg. Insts. sec. 795; see also secs. 777, 796-799; Borden v. Clark, 26 Mich. 410; Sackett v. Kellar, 22 Ohio St. 554; 1 Parsons on N. & B. 191, note, 1st ed.; Daniels on Neg. Insts., sec. 754-758, note. Redfield & Biglow’s Leading Cases on Bills, etc., pp. 214,- 270, and cases cited; Story on Promissory Notes, sec. 191, and cases cited; Sedgwick on Damages, p. 338; Bailey v. Smith, 14 Ohio St. 396: Edwards v. Jones, 7 Car. & P. 633; Stalker v. McDonald, 6 Hill, 93, 96; Williams v. Smith, 2 Hill, 301; Youngs v. Lee, 18 Barb. 187; Huff v. Wagner, 63 Barb. 230; Harger v. Wilson, 63 Barb. 237; Valette v. Mason, 1 Ind. 288; Sisterman v. Field, 9 Gray, 331; Allaire v. Hartshorne, 1 Zab. 665, 21 N. J. L. R. 665; Holcomb v. Wyckoff, 35 N. J. L. R. 35; 6 Vroom 35; Chicopee Bank v. Chapin, 8 Metc. 40; Stoddard v. Kimball, 6 Cush. 469; Hilton v. Smith, 5 Gary, 89; Bond v. Fitzpatrick, 4 Gary, 89; Butterfield v. Town of Ontario, 32 Fed. Rep. 891.

      Greorge J. Arthur, for defendant in error.
    The court of common pleas did not err in sustaining Loudenback’s demurrer to Kitchen’s second defense, as originally pleaded.
    While that defense might have been good in a suit on the note in the hands of the original payee, it did not state facts sufficient to defeat a recovery by Loudenback, who purchased the note from the payee, before maturity, for a valuable consideration, in the usual course of business, and without any knowledge or suspicion of any infirmity in the instrument. These facts are fairly inferred from the nature of the case and the express averments of the petition in common pleas. But it is not averred in the second defense, as originally pleaded, that Loudenback purchased the note sued on with notice, or under circumstances which amounted to notice, of any of the facts alleged by Kitchen; and the common pleas court, therefore, very properly sustained Loudenback’s demurrer to Kitchen’s second defense.
    But whether the court of common pleas was right or wrong in sustaining that demurrer, its final judgment cannot be reversed on that ground; because the plaintiff here does not appear to have been, and was not in fact, prejudiced by that decision. The record shows that all of the facts alleged by Kitchen in his second defense as originally pleaded were repeated by him in his amended second defense. In fact, his original second defense and his amended second defense are identical, except as to the averment in the latter that when Loudenback purchased the note he had notice of its “ illegal, fraudulent and gambling consideration,” and had knowledge of such facts as put him on inquiry, and that he paid for the note only $367.50.
    Loudenback did not demur, but replied to this amended second defense; and upon the issues thus joined the case was tried. Kitchen, therefore, had the full benefit of every averment of facts made by him in his original second defense, and could not have been prejudicially affected bythe court’s ruling on Loudenback’s demurrer. Davis & Co. v. Gray, 17 Ohio St. 337; Kitchen v. Loudenback, 3 Ohio Circuit Court Reports, 228.
    Kitchen’s bill of exceptions does not contain any of the testimony in the case; but it shows that testimony was offered by him, and admitted by the court, tending to prove all of the facts alleged in his answer as finally amended; and it shows also that in regard to the burden of proof, and the shifting of the same from the defendant to the plaintiff, the court of common pleas instructed the jury as requested by Kitchen, and in strict accordance with the rules on that subject as followed in the cases of McKesson v. Stanberry, 3 Ohio St. 156, and Davis v. Bartlett, 12 Ohio St. 534.
    II. The note in controversy was not given for a gambling consideration. Kitchen himself, says in his answer that it was given for a lot of wheat which he purchased at fifteen dollars per bushel. He probably paid too much for what he bought; but that was his own fault. Before buying the wheat and giving his note, he was fully advised and correctly informed of the quality of the wheat and of the nature of the scheme under which the vendors were operating. There was no fraud, therefore, in the transaction as between the original parties to the note — certainly none that would be available as a defense for Kitchen in a suit on the note in the hands of an innocent purchaser before maturity.
    And the transaction in which this note was given was not illegal. The act of May 15th, 1886, “ to punish and prevent fraud in the sale of grain, seed and other cereals,” (83 O. L. 162-163), was not passed until nearly a year after this note was given.
    But neither fraud nor illegality in the inception of the note brings the case under the operation of section 4269 of the Revised Statutes. For there is many a fraudulent, and many an illegal, business transaction which can in no legal sense be called a gambling transaction; and that which is described by Kitchen in his answer is one of this class.
    There is no analogy between the case at bar and the case of The Lagonda National Bank v. Portner, 46 Ohio St. 381. In the last named case the court held that the indorsee of a check given for money lost at a game of cards cannot recover upon it against the drawer, though a bona fide holder for value without notice of the vice in the consideration, because the check was plainly void under the provisions of section 4269 of the Revised Statutes. But there is a vast difference between a check given for money lost at a game of cards and a note given for fifty bushels of wheat, the wheat being actually delivered to and used by the maker of the note.
    III. In regard to the third point urged by counsel for the plaintiff against the proposition that, “ if the purchaser pays cash for a note he acquires it in the usual course of trade for a valuable consideration,” it is sufficient to say that the proposition is fully sustained by the decision of this court in the case of Tod v. Wick, 36 Ohio St. 392, and by numerous other authorities.
    But whether the proposition be sound or unsound, the bill. of exceptions shows only a part of a sentence taken from the charge of the court on this subject. If the entire paragraph from which the words quoted are taken, or if the entire charge of the court which was in writing, were contained in the record, it would not only appear that the court below did not charge this proposition without qualification, but that it instructed the jury fully as to what constitutes the purchase of a note bona fide, for value, and in the usual course of trade; and that the charge as a whole an this subject is fully sustained by all of the authorities. I submit that it is contrary to the settled practice of this court to reverse a judgment on the ground that there was error in the charge of the court below, when only an extract from the charge on the subject is shown by the record.
    IY. The charge of the court below on the question of Loudenback’s good faith in purchasing the note was not erroneous. It was not, as claimed by counsel for the plaintiff, “ equivalent to saying to the jury, that unless Loudenbaek was found to be a scoundrel in procuring the note, no matter what notice or knowledge he had of its fraudulent or gambling consideration, he could recover on it.” Nor was it equivalent to saying that, in order to defeat a recovery on the note, the jury must “ find from the evidence that he was a dishonest man, and in the purchase of the note acted in bad faith before it could find for the defendant below.” The charge will not, as a whole or in any of its parts, bear any such construction, or convey any such meaning as this. On the contrary, the record clearly shows, on pages 14, 15 and 16, that on this question the charge of the court was just to Kitchen, and strictly according to the law, as settled by the following cases. Johnson v. Way, 27 Ohio St. 374; Todd v. Wick, 36 Ohio St. 370; Murrey v. Lardner, 69 U. S. 110; Cromwell v. Sac County, 96 U. S. 51; McKesson v. Stanberry, 3 Ohio St. 156; Davis v. Bartlett, 12 Ohio St. 534; Bassett v. Avery, 15 Ohio St. 299, 479; 1 Daniels on Negotiable Instruments, secs., 769 to 777.
    Y. It is claimed by counsel for the plaintiff that the court below erred in its charge to the jury in regard to the amount which Loudenbaek should recover, if they found he was entitled to recover anything. Their proposition is, as I understand it, that whenever a negotiable promissory note is given without any consideration, or has its inception in fraud, or is the fruit of the illegal transaction, a purchaser before maturity, in good faith, for a valuable consideration, in the usual course of trade, and without notice of any infirmit3r in the note, is not entitled to recover upon it according to its terms, but is limited to the amount which he paid for the paper, with six per cent, interest from the time of his purchase. I submit that this is not the law, and is contrary to the rule followed by the highest authorities in dealing with this question. 1 Daniels on Negotiable Instruments, secs. 757 and 758; Cromwell v. Sac County, 96 U. S. 51; also Gaul v. Willis, 26 Pa. St. 259; Moore v. Baird, 30 Pa. St. 138; and Daniels v. Wilson, 21 Minn. 530.
    I insist that Loudenback was entitled to recover a verdict for the full amount of the note according to its terms, if he was entitled to anything, and that the court below did not err in its instruction to the jury to that effect. For this has always been regarded as a sound rule of commercial law in Ohio, and no decision in this state can be found to contravene it. The question was not involved, and was not decided in the case of Bailey v. Smith, 14 Ohio St. 396. The Supreme Court of the United States has followed this rule, notably in the case of Cromwell v. Sac County, 96 U. S. 51, above cited; and the reasons assigned in support of it by Justice Field, who delivered the opinion of the court in that case, are unanswerable.
   Spear, J.

1. The first exception is to the sustaining of the plaintiff’s demurrer to the second defense as set up in the amendment to answer. It is insisted that this defense showed the note to have been based upon a gambling consideration, and therefore void under section 4269 of the Revised Statutes. That section provides that all notes, etc., when the whole or any part of the consideration is for money or other valuable things won or lost, laid, staked or betted, at or upon any game, or upon any wager, etc., shall be absolutely void. No one would doubt that the alleged contract was immoral and against public policy, but does it involve a wager ? A wager is defined (Fareira v. Gabell, 89 Pa. State, 89), as a contract in which the parties stipulate that they shall gain or lose upon the happening of an uncertain event in which they have no interest except that arising from the possibility of such gain or loss. In this case the company sold and actually delivered to Kitchen fifty bushels of wheat at fifteen dollars per bushel. It further agreed to sell one hundred bushels of wheat to be grown by Kitchen from this seed, at the same price, less commission of 33|- per cent., and gave its bond to him to secure the performance of this agreement. Had the contract been a lawful one the failure of the company to perform would have been measured by damages and enforced by action on the bond. And, whatever may have been the intention of the company, it is clear that Kitchen had no idea but that the company would perform its agreement, and relied upon the bond as. his security. He did not intend to enter into a gambling contract. In that aspect, therefore, the contract lacked mutuality. It is true that there were elements of uncertainty in the transaction. Kitchen’s crop might fail to yield the quantity he expected would be sold, or any quantity, and the company might not be financially able to respond even should he be ready. But it does not follow that every contract which presents uncertainties is a wager. Nor did the company expect or intend to lose in case any failure of crop should make it impossible for the agreement to sell, on its part, to be carried out. Its intent was to obtain Kitchen’s note for the fifty bushels of wheat delivered, and that alone. In no view of the case was this a gambling contract within the meaning of the section of the statute quoted.

As against the petition the answer may have set up a defense, so, at least, as to throw upon Loudenback the burden of proving a purchase of the note before due, in the usual course of trade, and for value, and, in this aspect, it may be that the demurrer should have been overruled. But we think the exception cannot be sustained because it does not appear that the defendant was prejudiced by the ruling. The answer was subsequently amended by adding an allegation that the plaintiff, at the time he obtained the note, had notice of its want of consideration and fraudulent character. The defendant had, therefore, at the trial, advantage of the allegations of the second defense as originally pleaded, unless the court made some improper and prejudicial ruling as to the introduction of evidence, or order of proof. The record fails to show any error of this kind, and it must be presumed, in favor of the judgment, that none such was made. It is settled in Ohio that, in the absence of a bill of exceptions setting out the evidence, if any state of the evidence consistent with the pleadings would justify the verdict and judgment, a reviewing court is bound to presume, in support of the judgment, that such evidence was given. Ide v. Churchill, 14 Ohio St. 372; Bailey v. Smith, Id. 396. And it may be safely concluded that if the defendant had been, in any wise, prejudiced by the holding of the trial court, upon evidence, the vigilant counsel would have seen to it that the error was fully set forth in the record.

2. It is alleged as error that the court said to the jury: “ Briefly, if the purchaser pays cash for a note, he acquires it in the usual course of trade for a valuable consideration.” The equivalent of the above is decided in Tod v. Wick, 36 Ohio St. 370, in these words: “ Where the indorsee of a negotiable promissory note pays cash therefor, he is a purchaser in the usual course of trade,.notwithstanding the fact that he paid for the note a sum less than its fair and reasonable value.” Irrespective of this, however, the charge upon what constitutes a purchase of a note in good faith for value, in the usual course of trade, is full and accurate, and this court would not incline to disturb the judgment, for this cause, alone, even if it doubted the accuracy of the sentence quoted above, taken by itself.

3. The court, in the charge, said to the jury that “it is not sufficient if it only appears that he (plaintiff) took the note under circumstances that ought to have excited suspicion in the mind of a prudent and reasonable man, but it must appear that he took the note under circumstances as show he acted in bad faith, or with a want of honesty.” This is excepted to. We think the exception not well taken. The instruction was given to apply in the event that the jury found the plaintiff purchased the note before due, in the usual course' of trade, for a valuable consideration, and there is express authority for the instruction in Johnson v. Way, 27 Ohio St. 374, and in a large number of other cases. The proposition may be regarded as settled law in this state; and, upon this branch of the case the entire charge is fully as favorable to the defendant below as he could properly ask.

4. It is further urged as error that the court said to the jury that, if entitled to recover at all, the plaintiff was entitled to recover the face of the note, with interest. The theory of this exception is that the indorsee of paper, the consideration of which is illegal or fraudulent, can recover only the amount he paid with interest, because he should not be permitted to speculate as against the maker of the note. A long list of cases is given in support of this claim, and a number of them do support it. It seems to be conceded, however, that, in the absence of fraud or illegality in the inception of the note, though the consideration has wholly failed, the Iona fide purchaser for value before due, may recover the full face with interest. We fail to perceive that, upon principle, there is any difference between the two cases. Undoubtedly such holder’s rights must be determined by ascertaining what he gets by his purchase. If the note, then it seems clear that, unless the maker may be allowed a defense against the note, the measure of his liability is all that appears due on it. Can there be doubt that it is the note he purchases? The familiar rule is that defenses which might be set up as between the original parties to negotiable paper, will not avail as against a Iona fide purchaser for value, in the ordinary course, of trade, before maturity. In other words, such purchaser acquires the note clear of all defenses unless it is absolutely void for want of power in the maker to issue it, or its circulation is by law prohibited by reason of the illegality of the consideration. That is, the purchaser takes the note itself. He does not take a cause of action for money paid to another’s use. In paying, he is not paying money to the use of the maker, or for his benefit. He purchases the maker’s promise to pay. He is protected against defenses because he has the right to put faith in the representation, on the face of the paper, that it was given for a valuable consideration, and, as against the maker, the note is held to be as he represented it. He is, therefore, estopped from denying such, representation. How is the ease changed where fraud, or illegality, enter into the inception of the note ? The note is not void in either case. The purchaser does not any the less purchase the note. He is not, in any sense, less the owner of the paper itself. When action is brought to recover, the suit is just as much upon the note itself in the one case as in the.other. The representation of the maker has the same effect in inducing a transfer of the paper in the one case as in the other, and it would seem that it ought to be no less conclusive in the one case than in the other. The defense of the maker is against the note, and against the note only, in either case. If he may resist the amount of recovery it is because he has a defense to the note which he may be permitted to make. Without such defense the holder could recover the amount appearing due. If the defense is permitted, it does avail against the bona fide purchaser. And thus it would result that the Iona fide purchaser, instead of holding the note clear of equities existing between the original parties, would be subjected to a partial defense. This would seriously impair the usefulness of commercial paper as a medium of exchange. We think the more logical rule, as well as the safer and sounder one is, that the bona fide purchaser, at whatever price, takes the entire obligation of the maker. The amount paid is important as bearing on the bona fides of the purchase, but when it has been ascertained, from all the circumstances, that the purchase was made in good faith, before due, in the ordinary course of business, the recovery should be the amount of the note and interest. Where the indorsee holds the note only as collateral security for another debt, and there is no innocent party entitled to take the surplus, the doctrine is that the recovery is limited to the amount of the debt actually due. This rule is founded upon principles obviously reasonable and just. But, in strictness, such holder is not a purchaser. He holds only for the protection of his actual debt. The case before us is not that case.

The argument ah ineonvenienti affords considerations supporting the conclusion above indicated. Negotiable paper, in the ordinary course of trade, is likely to pass from hand to hand, and to be purchased for different sums. Its value is determined largely by the present responsibility of the maker, the probability of his continued ability to pay, and his character for punctuality in meeting engagements, and hence that value may change from time to time. If the amount paid is to be taken as the measure of recovery, which purchase is to be regarded as the one fixing the amount of recovery — the last one, or some previous one, and if the latter, which ? It seems to us that the rule contended for by counsel, besides being illogical and tending to impair the value of commercial paper, would lead to perplexing uncertainties.

A strong case sustaining our conclusion is that of Cromwell v. County of Sac, 96 U. S. 51. Bonds authorized by a vote of the people of Sac county, to procure the building of a court-house, had been illegally issued and delivered by a county officer to a contractor who wholly failed to build the court-house, and were purchased by the plaintiff before due for value, without notice of any infirmity. The court held that “ A bona ficle purchaser of negotiable paper for value, before maturity, takes it freed from all infirmities in its origin, unless it is absolutely void for want of power in the maker to issue it, or its circulation is by law prohibited by reason of the illegality of the consideration,” and “ a purchaser of negotiable securities before their maturity, whatever may have been their original infirmity, can, unless he is personally chargeable with fraud in procuring them, recover against the maker the full amount of them, though he may have paid therefor less than their par value.” Mr. Justice Field, in the opinion, after announcing the foregoing, uses this language: “We are aware of numerous decisions in conflict with this view of the law; but we think the sounder rule, and the one in consonance with the common understanding and usage of commerce, is that the purchaser, at whatever price, takes the benefit of the entire obligation of the maker. Public securities, and those of private corporations, are constantly fluctuating in price in the market, one day being above par and the next below it, and often passing within short periods from one half of their nominal to their full value. Indeed, all sales of such securities are made with reference to prices current in the market, and not with reference to their par value. It would introduce, therefore, inconceivable confusion if bona fide purchasers in the market were restricted in their claims upon such securities to the sum they had paid for them.”

Lay v. Wissman, 36 Iowa, 305, is a case directly in point. See, also, Tod v. Wick, supra, and the well considered opin ion of Shauck, J., in the present case, 3 C. C. R. 228.

We find no error in the record, and the

Judgment will be affirmed.


source: Caselaw Access Project

author: Williams, C. J.

license: Public Domain

text:
    Bryant v. Swetland et al.

      Statute of limitations — Action to reform written instrument — When barred — Statute may be pleaded in bar when reformation sought by answer— When statute begins to run.

    1. An action to reform a written instrument on the ground of mistake, comes -within the class provided for by section 4985 of the Revised Statutes, which limits the time within which the same may be commenced, to ten years after the cause of action accrues.
    2. Where such reformation is sought by answer filed in an action brought to enforce th? instrument, the plaintiif may set up the statute in bar, when the cause of action for the reformation accrued more than ten years before the commencement of the action in which the answer is filed.
    3. In such case, the cause of action accrues upon the execution of the instrument, and the time when the statute begins to run is not postponed to the discovery of the mistake, as it is to the discovery of the fraud, in cases where relief is sought on that ground.
    (Decided February 24, 1891.)

      Error to the Circuit Court of Knox county.
    The original action was brought by Edwin D. Bryant against Joseph C. Swetland and Byrom L. Swetland, in the Court of Common Pleas of Knox county, on the 9th day of January, 1883. The petition alleges that “ on the 16th day of August, A. D. 1871, plaintiff, and the defendant, Byrom L. Swetland, were partners in the city of Mt. Yernon, Knox county, Ohio, in the dry goods business, and were in failing circumstances and unable to meet their debts then due and to become due; and that in order to effect a compromise with their creditors, who were mostly eastern wholesale merchants, and to prevent a sacrifice of their stock of goods, they entered into a contract with the defendant, Joseph C. Swetland, who is a brother of his co-defendant Byrom L., by the terms of which contract, plaintiff and his then partner, Byrom L. Swetland, sold and transferred all their stock of goods, then invoiced, together with the fixtures about and in their business house, and accounts due said firm, amounting, after taking out 10 per cent, discount, to the sum of $15,884.13. Said Joseph C. Swetland, by the terms of said contract, was to use the amount of property and accounts above sold and transferred to him, in payment of the debts of said firm by way of compromise as he should be able to obtain said claims against said firm; said Joseph C. Swetland not to pay out on the said claims against said firm of Swetland & Bryant a sum exceeding the sum of $15,839.74, and the said Joseph C. Swetland was to pay the balance, after paying debts of firm, to this plaintiff and his co-defendant, Byrom L. Swetland.”
    The petition further alleges, that at the time the contract was entered into, the total indebtedness of the firm was $15,657.58; that Joseph C. Swetland took possession of the stock of goods, fixtures, and accounts, under the contract, and “ entered upon and executed the trust created by said contract, and settled and compromised and paid off the debts of said firm.” The names of the creditors of the firm, together with a statement of the amount due each creditor. and of the amount paid by Joseph C. Swetland in satisfaction of each claim, are set forth in the petition.
    It is further averred that the “ whole amount paid by said defendant, Joseph C. Swetland, in payment and satisfaction of all the claims against the firm of Bryant & Swetland, was $12,668.16, and no more, and leaving a balance in the hands of said Joseph C. Swetland, after paying all the debts of the said firm, to the amount of $3,215.97; that all said claims against said firm of Swetland & Bryant, were compromised and paid off in the fall and winter of 1871, and plaintiff repeatedly requested Joseph C. Swetland to account to him and his co-partner for the balance in his hands after paying debts of said firm, but the defendant, Joseph C. Swetland, has neglected hitherto and still neglects and refuses to pay over or to account to plaintiff for said balance. Byrom L. Swetland refuses to join as plaintiff in the prosecution of this action ; and for this reason he is made a co-defendant with the said Joseph C. Swetland.”
    The contract, a copy of which is given in the petition, was reduced to writing and executed by the parties. It was attached to the footing of the inventory of the stock of goods, fixtures, and debts due the firm, in the invoice book, and with that footing is as follows:
    “ Amount of goods brought over as within $18,604 88 .
    “ Amount of store fixtures as within . 851 73
    “ Amount of debts due the firm less 10 per cent. 1,383 13
    $15,839 74
    “ Contract.
    “For value received, we the subscribers, hereby sell, assign, transfer and set over unto Joseph C. Swetland all our right, title and interest to the within inventory of a stock of goods, wares and merchandise above mentioned, including all debts, book accounts, notes, judgments, dioses in action of every name and nature due said firm, appertaining to or growing out of any dealings of said firm from the commencement of our said business up to this date, and we further authorize and empower said Jos. C. Swetland, his heirs or assigns, to enforce the collection of all claims due said firm in his or our name as fully as we could ourselves without recourse to us. Said amount to be paid by Joseph C. Swetland to our creditors by way of a compromise, as he, the said Swetland, may be able to obtain said claims against us as a firm, the sum to be paid not to exceed the sum above mentioned, 115,889.74. Balance to be paid to us.
    “ Mount Vernon, Ohio, August 16,1871
    “ Byrom L. Swetland.
    “ E. Douglas Bryant.
    “ Jos. C. Swetland.”
    (Five cent stamp.)
    The prayer of the petition is for judgment against Joseph C. Swetland, for the alleged balance in his hands, with interest from January 1,1872.
    The answer of Joseph C. Swetland contains two defenses. The first alleges, that under the written contract referred to in the petition, he became a trustee for the benefit of the creditors of the firm of Bryant & Swetland, that he converted the assets transferred to him into money, and applied the whole proceeds to the payment of the debts of the firm, and that nothing remained to pay the expenses of executing the trust, or any compensation for his services in that behalf.
    The second defense is as follows:
    “ For a second defense the defendant says that the writing set out in the petition purporting to set forth the contract between Edwin D. Bryant, Byrom L. Swetland and this defendant, does not state the terms and conditions of the agreement actually made between said parties; by mutual mistake, oversight and omission, in reducing said contract to writing, the real understanding and agreement of said parties was not expressed therein. This defendant avers that the real contract made between said parties and attempted to be expressed in said writing was that this defendant was to take said goods at the invoice price thereof, less ten per cent.; he was to pay for the same by paying the debts of said Swetland & Bryant. This defendant was to have the privilege of compromising said debts with the creditors of said firm, and any discounts he might be able to obtain thereon were to inure to the benefit of this defendant. This defendant says that said stock of goods were the remnants of four old stocks of goods, and were not worth to exceed fifty cents on the dollar of the invoice price thereof; that the only consideration that induced this defendant to take said goods at the invoice price thereof less ten per cent, was the fact that it was the understanding and agreement that he was to have the benefit of any discounts obtained on claims against said firm, and it was understood at the time of signing said paper the amounts of said discounts. By reason of the mistake aforesaid said writing is silent as to who should have the benefit of said discounts. To express the agreement of the parties thereto said writing should state that this defendant was to have the full benefit of all discounts obtained on claims against said firm. The defendant says there is manifest error in stating the amount of the debts due the firm of Swetland & Bryant assigned to this defendant to be §1,383.74. The invoice thereof shows the said debts amount to $1,425.69 less ten per cent, equals $1,283.74 instead of $1,383.74, as stated in said writing. This defendant further says that there is ambiguity in said written contract in the expression therein, ‘ balance to be paid to us.’ The other expressions in said writing do not make it apparent what balance is referred to, whether the balance between the invoice price of said goods less ten per cent, and the face of the debts of Swetland & Bryant, paid by this defendant, or the balance between the invoice price less ten per cent, of said goods and the amount this defendant paid to settle said debts. This defendant says, that by said expression in said contract, 1 balance to be paid to us,’ was meant the balance, if any, after taking the face of the debts of Swetland & Bryant adjusted by this defendant from the invoice price less ten per cent, of said goods. This defendant denies that he only paid H. B. Clafflin & Co. $3,778.87 in settlement of their claim against Swetland & Bryant, but avers on the contrary that he paid said claim in full $5,038.49. This defendant denies that Swetland & Bryant only owed J. W. Hartley & Co. $3,250, and that he only paid. $2,650 to settle the same; this defendant avers that there was due to J. W. Hartley & Co. $4,086.40, and that he paid the sum of 3,586.40 to settle the same. The defendant says lie has paid and discharged in full the indebtedness of Swetland & Bryant to the amount of $15,839.74 and more. Ah itemized list of said indebtedness and the amount paid by this defendant in satisfaction thereof, is set out in his first answer filed herein, and having paid all he agreed to pay he denies that he is indebted to the firm of Swetland & Bryant or to this plaintiff in any sum whatever. The defendant says that he did not know that said contract did not express the real contract between the parties thereto, and he only discovered the same as herein set out until a short time prior to filing his first answer herein. Wherefore defendant prays that on a final hearing of this case the said written instrument may be corrected so that the same will express the real agreement made between this defendant and plaintiff and Byrom L. Swetland as set out in this answer, first by showing the correct amount with which defendant should be charged for accounts and turned over to defendant; second, by making said writing state fully that this defendant shall have the benefit of all discounts obtained on the claims settled bjr this defendant for Swetland & Bryant; third, that the ambiguity in said contract in the expression, ‘ balance to be paid to us,’ may be corrected, and the real balance meant by the parties may be determined by the court; and that this defendant be discharged from any liability to the plaintiff, or to the late firm of Swetland & Bryant, with his reasonable costs.”
    A reply was filed, which, in substance, denies generally the allegations of the answer, and avers that the alleged cause of action therein set forth, to have the mistake in the written contract corrected, and the instrument reformed so as to conform to the actual agreement made by the parties, did not accrue within ten years next before the commencement of the action, nor within ten years next before the filing of the answer.
    The defendant Byrom L. Swetland, also filed an answer, by which he denies that he refused to unite with the plaintiff in the prosecution of the action. He avers that there has never been a settlement between him and the plaintiff, of the partnership affairs and business of the firm of Swetland & Bryant, and that upon a settlement thereof a large sum will be due him from the plaintiff. He. further avers that the plaintiff is insolvent, and that unless his rights are protected in this case he will be without remedy, and he prays, that he be made a party plaintiff, and whatever judgment is recovered against Joseph C. Swetland may be rendered in favor of the firm of Swetland & Bryant, and that an account be taken between the parties, and their rights as between themselves to the fund recovered, be determined.
    The averments of this answer are controverted by a reply.
    In the court of common pleas, the plaintiff recovered a judgment against Joseph C. Swetland, and all questions between the copartners were reserved by that court for future determination. Joseph C. Swetland appealed; and upon the trial of the cause on appeal, the circuit court stated its conclusions of fact as follows :
    “ First — That Joseph C. Swetland purchased the stock of goods, fixtures and accounts of Swetland & Bryant and agreed to pay for the same the sum of $15,839.74, less ten per cent, discount, and less any discount he might be able to obtain from the creditors of Swetland & Bryant on their several claims in compromising the debts of the firm of Swetland & Bryant, and the court find that the liabilities of said Swetland & Bryant at the date, of said sale were $15,657.58.
    “ Second — The court further finds that the words 1 Bal. to be paid to us ’ were put into said contract after it had been signed by Byrom L. Swetland and before it was signed by E. Douglas Bryant, plaintiff, and the court finds that these words were understood by the parties to said contract to refer to any balance there might be between the contract price of goods, etc., and the aggregate amount of liabilities of the firm of Swetland & Brj^ant, and that there was no balance of the purchase price of said goods over the aggregate amount of liabilities of said firm, and that plaintiff is not entitled to recover any sum from defendant, Joseph C. Swetland, for any balance of price of goods, etc., over debts of the firm of Swetland & Bryant.
    “ Third — The court further finds that said contract by the mutual mistake and omission of the’ parties fails to express the contract and agreement of the parties in relation to the purchase and payment of said goods, etc., by the said Joseph C. Swetland, in this, to wit: That it was mutually agreed between the parties at .the time said contract was made and as a part thereof, that Joseph C. Swetland was to have all discounts he could obtain from the creditors of Swetland & Bryant, on the payment of the claims of said creditors, and that said contract ought to be reformed so as to express the agreement of the parties in this behalf. And the court finds that said Joseph C. Swetland is entitled to all discounts obtained from the creditors of Swetland & Bryant on their claims against said firm under said contract when reformed to express the agreement of the parties.
    “ Fourth — The court further finds that more than ten (10) years had elapsed between the making of said contract of sale of said goods, etc., by Swetland & Bryant to the said Joseph C. Swetland and the bringing of this suit.”
    Thereupon, the court adjudged that the “ contract be reformed, and be made to provide that Joseph C. Swetland is to have all discounts he may be able to obtain from the creditors of Swetland & Bryant on their claims against said firm ; and that said contract so reformed be taken and held to be the contract of the parties hereto. It is therefore considered by the court that there is nothing due from the defendant, Joseph C. Swetland, to the plaintiff upon the cause of action set forth in plaintiff’s petition, and that said petition be dismissed, and that the defendant recover of plaintiff his costs in this behalf expended, taxed at $-, and it is ordered that plaintiff pay his own costs, taxed at $-, and this cause is remanded to the court of common pleas for execution.” The plaintiff in due time filed his motion to set aside the findings and decree of the court and grant a new trial, which was overruled. To this ruling of the court the plaintiff excepted, and his bill of exceptions, containing all the evidence, was duly allowed and filed; and he prosecutes this proceeding in error to obtain the reversal of the judgment of the circuit court.

      Adams Irvine and Abel Hart, for plaintiff in error.
    The reformation of the contract by the circuit court, defeats the contract as made by the parties. The reformation was not made on sufficient testimony. Potter v. Potter et al., 27 Ohio St. 84; Pollock v. Warrick, 10 S. E. R. 699; Gray v. Kerr, 46 Ohio St. 652.
    The statute of limitations is a bar to the reformation of the contract. Section 4985.
    Since the passage of the code, limitations are express, and. the right to have the contract reformed is limited to ten. years, because not otherwise specifically limited in the statute. If plaintiff in error had commenced his action within ten years this might have saved defendant’s right, but not otherwise. Wood on Limitation, page 602, sec. 282; Gray v. Kerr, 46 Ohio St. 652. Mistake or accident will not interfere with the running of the statute since the passage of the code, and the case of Longworth v. Hunt, 11 Ohio St. 194, et seq., and Long v. Mulford, 17 Ohio St. 484, were actions that accrued before the passage of the present statute of limitations, and both contained charges of fraud. In this case there are no charges or suspicions of fraud. Paschall v. Hinderer, 28 Ohio St. 568. A defense to an action is one thing; affirmative relief is another. That a party did not know of an alleged defect in a contract is of no avail. The defendants could not have the contract reformed, either in an- action upon it, or to defend an action brought by another, after ten years from the making and delivery of the contract. Oakes et al. v. Howell, 27 Howard Practice Rep, page 147; Wood on Limitations, pages 604, 806; sec. 5077, Rev. Stats.

      John B. Waight and W. O. Culbertson, for defendant in error.

      1. Is the finding of the court supported by the evidence ?
    From an examination of the testimony, set forth in the bill of exceptions, it is manifest, we think, that the mistake alleged was made out to the satisfaction of the court by “ clear and convincing proofs,” and not by a mere preponderance which is only required to sustain the findings of trial courts in ordinary civil cases.
    The rule of law as to degree of proof required in eases of this kind, to warrant the finding, was carefully observed and clearly applied by the court below in this case. Under a well settled rule, applicable to the review of facts on error, this court will not disturb the finding of the court below, unless the same was manifestly unwarranted by the evidence. In this case it must affirmatively appear from the record, that; the court below clearly disregarded the rule requiring “ clear and convincing proof” to maintain the issue, and that the findings can only be sustained on the theory that the court only required the issue to be proven by a preponderance, before this court will disturb the findings of the circuit court.
    II. On behalf of the defendants, we insist: 1. That the right to institute and maintain a bill in equity to reform a written instrument, on account of a mistake, is not barred in ten years. Clements v. Noble, 40 Ohio St. 41; Riddle v. Krienbiehl, 12 La. Ann. 297; Lastrapes v. Roquet, 23 Id. 68; Maders v. Lawrence, 49 Hun 360; Conner v. Smith, 88 Alabama 300; Buswell on Limitations, sees. 142, 143.
    2. Should it be held that ten years constitute a bar, where suit is brought and affirmative relief is demanded, to correct a mistake in a written instrument, yet we insist that in an action founded upon the contract, the mistake in the writing may be pleaded, by way of defence in equity, as long as a cause of action exists on the writing. In courts of equity a distinction is frequently made between suits brought to enforce a demand and suits brought to relieve against a demand. Justice v. Lowe, 26 Ohio St. 372; Ins. Co. v. Tulledge, 39 Ohio St. 240; Pomeroy’s Equity Jurisprudence, vol. 2, sec. 854; Wood on Limitations, page 117, sec. 58; McNair v. Ragland, 1 Dev. (N. C.) 533; Bidwell v. Astor Ins. Co., 16 N. Y. 263; Wood v. Ford, 29 Miss. 57.
    3. As long as a cause of action exists on the written contract, the defendant is not estopped from setting up, by way of defense at law, a parol agreement, made at the same time, as part of the transaction, although an action on such parol agreement is barred. Wood on Limitations, page 603, sec. 282; Monroe v. Hanson, 9 Ga. 398; Evans v. Younge, 8 Rich. S. C. 113; Richardson v. Blaight, 8 B. Mon. (Ky.) 580.
    4. In a court of equity the statute of limitations has no binding force by its own effective force, but it is only adopted and applied by analogy to cases within what is considered its reason. Bigelow’s Exr. v. Bigelow’s Admr., 6 Ohio 96; Ridley v. Hellman, 10 Ohio 524; Hayward v. Elliott Nat. Bank, 96 U. S. 11; Lawrence v. Trustees, 2 Denio 577; Angell on Limitations, (5 ed.,) sec. 26, note 2.
    5. The mistake in this case was not discovered until a short time before Joseph C. Swetland filed his pleading asking a reformation of the writing as averred by him, and not denied. Time in equity only begins to run from a discovery of the facts. Longworth v. Hunt, 11 Ohio St. 194, 653; Long v. Mulford, 17 Ohio St. 484.
   Williams, C. J.

The plaintiff’s action was founded upon the written contract, and sought the recovery of a money judgment for the amount due thereon. From the inventory, which, by reference, became a part of the contract, it appears that the property sold by the firm of Swetland & Bryant to Joseph C. Swetland, after deducting ten per cent, from the invoice price, amounted to the sum of $15.839,74. . The contract contemplates that the whole of this amount might be required to pay the creditors of the firm, and it provides that the sum to be paid them shall not exceed that amount, which imports an obligation on the part of the purchaser to pay that amount to them if necessary to settle their claims. The contract also contemplates that it might not be necessary to use the whole purchase-price of the goods for that purpose, but that Joseph O. Swetland might, by compromises with the creditors, be able to take up their claims by the payment of less than the amounts actually owing them by the firm, in which event, a balance would remain in his hands, after the claims of all the creditors should be satisfied. This balance, the contract provides, shall be paid to the firm-; and the action of the plaintiff below was prosecuted to recover an alleged balance so arising. The petition, by proper aver,ments, shows that the claims of all the creditors of the firm of Swetland & Bryant have been satisfied and settled, and that the total amount paid by Joseph C. Swetland for that purpose, was $12,668.16, leaving a balance due the firm from him under the contract of $3,215.97.

The answer admits the execution of the contract by the parties, but denies "that Joseph C. Swetland paid no more than the amount alleged in the petition, in satisfaction of the claims of the creditors, and avers that he paid them the whole purchase-price of the property. The further answer, in substance, is, that it was part of the agreement between the parties, that Joseph C. Swetland should have the benefit of all the discounts he might be able to obtain from the creditors on th§ir claims against the firm, which stipulation, it is alleged, was by mistake, omitted from the written contract; and the answer accordingly prays for the reformation of the instrument, by correcting the alleged mistake. And it is alleged that if the contract should be so reformed there would be nothing due the firm. To this part of the answer the plaintiff replied, controverting its allegations, and pleading the statute of limitations in bar.

The court of common pleas found the issues for the plaintiff, and rendered judgment in his favor. This was an adjudication adverse to the defendant’s claim for the reformation of the instrument, from which he might properly appeal. The appeal, however, did not open up for re-trial in the appellate court, the legal issues determined in favor of the plaintiff by the court below. It operated only to suspend the enforcement of the judgment until the appeal should be determined. Buckner v. Mear, 26 Ohio St. 514. But the defendant prevailed in the circuit court, and, there obtained a decree reforming the contract. If that decree is sustained, it defeats the judgment of the lower court and ends the controversy. If it should not be, the judgment of the court of common pleas will remain operative, and may be carried into execution. The record of that court is not brought before us. This proceeding brings in review only the judgment of the circuit court on the equitable case for the reformation of the contract, and presents no substantial ground for disturbing that judgment, unless the statute of limitations, as pleaded by the plaintiff, constitutes a bar to the defendant’s claim for the relief awarded him.

It is firmly settled in this state, that the statute of limitations applies to all civil actions, whether they be such as before the adoption of the code of civil procedure were called actions at law or suits in equity, except certain specified actions which the statute expressly exempts from its operation ; and there can be no doubt, that if the defendant had bjr a separate action sought the relief he obtained upon his answer, that action would be subject to the provisions of the statute prescribing the time within which eivil actions may be commenced. And the only question in this case is, whether the statute is applicable where that relief is sought by answer filed in an action brought to enforce the contract.

Counsel for the defendant contends, that since the only effect of the reformation of the instrument, as demanded, is to defeat the plaintiff’s action, the answer in this respect is but an equitable defense, against which the statute of limitations does not run; and in support of this position, 2 Pomeroy’s Eq,, p. 320, is cited, where, in a foot-note, it is said that “ whether affirmative relief be permitted or not, the omitted verbal portion of the entire agreement may be set up by way of defense in equity, when an attempt is made to enforce the written partalone.” The note refers to Murray v. Dake, 46 Cal. 644; Quinn v. Roath, 37 Conn. 16, and Jervis v. Berridge, L. R., 8 Ch. 351. We have examined these cases, and are of opinion they do not sustain the position taken by counsel. The California case was an action of ejectment by a lessee, to recover from the lessor, possession of part of the premises described in the lease. The defendant claimed that by the agreement of the parties, the portion of the premises in his possession were to be excluded from the lease, and were included hy mutual mistake, and this fact being known at the time of the execution of the lease, it was signed as drawn, upon the agreement of the lessee that the premises he sought to recover should be considered as not included. The defendant prayed a reformation of the lease, and the question in the case was whether parol evidence of the verbal agreement was admissible. The court held that the rules of evidence do not “ exclude proof by parol testimony of fraud or mistake in the execution of a contract when a reformation of the instrument is sought; ” and, that such reformation might be had where a stipulation was omitted from the writing upon the agreement that it would he observed, and the party was endeavoring to enforce the written instrument, contrary to the stipulation so omitted. The case then, it was said, becomes one of fraud, which courts of equity will relieve against as in cases of fraud in the execution of a contract. The Connecticut case was for the specific performance of a contract to convey real estate. Upon the trial, respondent offered parol evidence to prove that at the time of the negotiation and execution of the contract, it was verbally agreed that if the petitioner failed to make a payment by a specified day, the contract should be void. The court, in holding the evidence admissible, say, that “ the admissibility of the particular species of evidence here offered is restricted to the defense of bills brought for a specific performance, and the courts, in admitting it to repel the attempt of a purchaser or seller of land to oblige the other party to the contract to perform his part specifically, have proceeded upon the just ground of inequitableness in the petitioner in striving to enforce the execution of a written contract with parol variations by regarding only the written provisions and entirely disregarding the verbal variations.” The case of Jervis v. Berridge, supra, is much to the same effect. Neither of the cases afford any aid in the solution of the question before us.

The new matter set up in the answer of the defendant, upon which he asked to have the written contract sued on, reformed,, is .not, properly speaking, a defense. It constitutes an equitable counterclaim under the code, which is a cause of action in favor of the defendant against the plaintiff, between whom a several judgment may be had in the action, and upon which the defendant may, if it be successfully maintained, obtain the relief he would have been entitled to under the former practice on a bill in equity upon the same facts. Buckner v. Mear, supra. As was said in the opinion of the court in that case: “ For some purposes a counterclaim, .whether consisting of a legal or equitable cause of action, may be regarded as an action of itself. It is not simply new matter, operative only by way of defense. It must contain facts recognized by courts of law or equity as constituting an existing cause of action, which would have entitled the defendant to a judgment or decree in a separate action. Hill v. Butler, 6 Ohio St. 207.” In Kimmel v. Pratt, 40 Ohio St. 344, it is held that the “plaintiff against whom an answer demanding affirmative relief is filed, is a defendant to a cross petition.”

Under the provisions of the code, the court at any time before the final submission of the case, may, on motion of the defendant, allow a counterclaim to be withdrawn, and the 'same may become the subject of another action; and on motion of either party made at the time it is so withdrawn, an action on the same shall be docketed and proceeded in without process. Revised Statutes, section 5089. If the counterclaim be withdrawn and made the subject of another action, or docketed as a separate action, to be proceeded in without process, there can be no doubt, we apprehend, that the statute of limitations may be pleaded in bar of the action. When not so withdrawn, the two actions are tried together, as one action, in which each party becomes in turn a plaintiff and a defendant. The provisions of the code which permit this to be done, were designed to simplify the mode of procedure and prevent multiplicity of suits. It was not their purpose to abridge the operation of the statute of limitations, or otherwise change the rules of law or equity governing the rights of the parties.

It is true, that if the defendant below succeeds in maintaining his counter claim, it operates to defeat the plaintiff’s action, and is, in that sense, a defense. But he must first establish his case for the reformation of the contract, before the defense can arise. Until reformed, the written instrument is the only evidence of the contract; and, except for the purpose of accomplishing its reformation, parol evidence is inadmissible to show that the agreement was different from that therein expressed. And unless the contract be reformed, the plaintiff is entitled to recover upon it. Judgment reforming the contract, is, therefore, necessary to create the defense; and it would seem that the plaintiff should be allowed to interpose any legal objection he may have to the granting of such affirmative judgment, and the bar of the statute of limitations is, we think, open to him for that purpose. The same reasons exist for the application of the statute, where the reformation of a written instrument is sought by way of counterclaim, as do when made the subject of a separate action.

An action to reform a written instrument on the ground of mistake, comes, we think, within the class provided for by section 4985, of the Revised Statutes, which limits the time within which the same may be commenced, to ten years after the cause of action accrues ; and the statute, we hold, may be set up in bar, as vYell, when such reformation is sought by answer in an action brought to enforce the instrument.

The cause of action accrues, in such cases, upon the execution of the instrument, and the time when the statute begins to run is not postponed to the discovery of the mistake, as it is to the discovery of the fraud, in actions for relief on that ground.

The statute of limitations, it is well settled, is applicable to a set-off; the general rule being, that “if a defendant pleads a set-off, the plaintiff may reply the statute.” Wood on Limitations, p. 601; Russell on Limitations, sec. 141. This is recognized as the rule in McEwing v. James, 36 Ohio St. 152. But it is there held, that the statute “ ceases to run •against the set-off from the date of the commencement of the action in which it is pleaded.” We see no reason why the principle of that decision should not apply to a counterclaim. But it does not aid the defendant, for it is shown, by the facts found by the circuit court, that the defendant’s cause of action for the reformation of the contract, accrued more than ten years before commencement of the plaintiff’s action.

The judgment of the circuit court is reversed, and the counter claim dismissed. And, as this disposes of the case appealed to that court, the cause will be remanded to the court of common pleas for the execution óf its judgment.

Judgment accordingly.


author: By the Court.

text:
    Whitbeck, Treas., v. Minch.

      Payment of an illegal assessment, under protest simply, not an involuntary one.

    (Decided March 3, 1891.)
    ERROR to the Circuit Court of Cuyahoga county.

      A. T. Brinsmade and W. B. Sherwood, for plaintiff in error

      Mix cf White, for defendant in error.
   By the Court.

A party who pays an illegal assessment upon his property, cannot recover it back in a suit against the treasurer, unless the payment was an involuntary one. To constitute the payment an involuntary one, it must appear that the treasurer was about to levy a distress upon the property of the party charged with the assessment: a simple protest against the validity of the assessment, with notice to the treasurer that the party intends to bring suit to recover it back, is not sufficient. In such case 'the general rule applies that, if litigation is. intended, it must precede payment, where, as in such cases, the party has a plain remedy provided by statute, section 5848, Revised Statutes, and may resort to the same, and thereby avoid a distress of his property.

Judgments of both courts reversed, and cause remanded to the common fleas for further froceedings.


text:
    Giffin et al. v. Brooks, Ex’r, et al.

      Wills — Revocation—Probate.
    (Decided March 10, 1891.)
    Error to the Circuit Court of Lake county.

      S. E. Williamson and E. Sowers, for plaintiff in error.

      Webster Angelí, Burrows f Jerome and A. T. Brinsmade, for defendants in error.
   By the Court.

1. Under section 5953, of the Revised Statutes, which provides for the revocation of wills, a clause of a will cannot be revoked by the testator drawing ink lines through the words thereof, with an intent to revoke such clause, but not with an intent to revoke the whole will.

2. In such case, when the words of such clause remain legible, the whole will should be admitted to probate, including such erased clause as a valid part of such will. Giffin v. Brooks, Ex'r, 3 Circuit Court Reps. 110, approved.

Judgment affirmed.


text:
    The State ex rel. v. Smith et al.

      Constitutional Law — Special Legislation.

    A statute applicable only to a particular city in the grade and class to which it belongs, and which cannot by reason of its provisions, be adapted to any other city in the same grade and class, is special in its nature and not general and where corporate power is conferred thereby, is invalid.
    (Decided March 12, 1890.)

      Error to the Circuit Court of Hamilton county.
    On March 13, 1890, an act was passed by the general assembly of the state, creating for cities of the first grade of the first class “ a board of public improvements,” and abolishing the “ board of public affairs,” the duties of the latter board being conferred on the new board, which was declared to be “ in all respects the successors of said board of public affairs.” 87 Ohio Laws, 62. Under this law the relators, Reemelin, Donham and Montgomery, together with the defendants, Kerper and Ellison, were appointed such board for the city of Cincinnati by the governor of the state, on whom the power of appointment was conferred by the statute. Afterwards at a called session of the legislature, this board was abolished by an act passed October 24, 1890, and a new one, called “ the board of city affairs ” was created for cities of the same grade and class as the former one. It was made to consist of four members to be appointed by the mayor, “ two of whom,” in the language of the law, “ shall be members of one of the leading political parties, and two of whom shall be members of the other leading party.” Each member was required to give bond for the faithful performance of his duty in the sum of $50,000, which was required to be approved by the judges of the superior court and city solicitor of said city.
    Under this statute the defendants were appointed such board by the mayor of Cincinnati in accordance with its provisions; and, against the protest and remonstrance of the relators, took possession of the office and place of business of the board of public improvements and ousted them therefrom, and entered upon and have continued to discharge the duties conferred on them by the act creating the board of city affairs. The suit below was then commenced in the circuit court by the relators to determine the right of the defendants to act as such board, and to cause themselves to be re-inducted as members of the board of public improvements, claiming that the statute of October 24, 1890, is unconstitutional on the ground that it is a special act, conferring corporate power; and, also, on the ground, that the provision requiring the members of the board to be chosen from the two leading political parties, is a proscription of all other citizens on account of their political opinions.
    The circuit court dismissed the petition, and this suit is brought to reverse the judgment of the circuit court.

      Follett Kelley and Peek Shaffer, for plaintiff in error.
    The act is special and confers corporate power.
    1. From the message of the governor to the special session of the legislature 'when convened, expressive of the purpose for which the special session was called. In that message he states, “ The extraordinary power of calling a special session of your honorable body has been invoked on account of the deplorable condition of public affairs in the city of Cincinnati.” It was to legislate for Cincinnati that the legislature was called in session, and no city but Cincinnati was contemplated in the measure referred to.
    2. An inspection of the act itself conclusively shows that it is a special act, and was intended only for Cincinnati.
    While the title of the act and the beginning of section 2205 are general in form, said section provides as follows: “ The present Board of Public Improvments of said city is hereby abolished, and the mayor of said city shall, within ten days after taking effect of this act, appoint four members to serve as a Board of City Affairs, until the qualification and organization of the elected board herein provided for.” And in section 2206, relating to the bond to be given by the members of said board, said act provides as follows: “ Such bond shall be approved by the judge of the superior court and city solicitor of said city.”
    At the time of the passage of this act, Cincinnati was the only city in the state of Ohio having a Board of Public Improvements. At that time also Cincinnati was the only city in the state of Ohio of any grade or class having a superior court. Cincinnati was also at that time the only city in the state of the first grade, first class, and no other city in the state could, under the provisions of the statute in force, be raised to a city of the first grade, first class, within the ten days from the passage of the act, within which the mayor was required to make the appointments of the members of the board then attempted to be created, to wit, the Board of City Affairs. The act also specifies, “ The present Board of Public Improvments of said city is hereby abolished.” Section 2208. And again, in section 2231, the language is, “ The present Board of Public Improvments.” The manifest intent running throughout the act is that it shall apply only to the city of Cincinnati, and said city is as clearly designated as though it had been named. We think the case of the State v. Pugh, 43 Ohio St. 98, is decisive of this case, both upon the proposition that it is a special act, and that it confers corporate powers. The prior decisions of this court, cited and commented upon in announcing the opinion in that case, also clearly sustain our position, and we think the law, as applied in that case, is thoroughly settled in -this state. The act of October 24,1890, is so very similar to the act declared void in State v. Pugh, that it would seem that the draughtsman of the former consciously imitated the latter — that it comes within the rule there laid down by Owen, C. J., seems too clear for controversy.
    The portions of this act referred to make it so clear “ that no other city of the state can in the future come within its operation,” that we forbear further comment. State v. Pugh and numerous other cases therein referred to, are equally decisive to the effect that this is an act conferring corporate power. If the creating of a governing body of a large corporation with power to collect and expend money, and to make contracts in behalf of such corporation, is not conferring corporate power, that phrase has very little meaning. See also State v. Anderson, 44 Ohio St. 248, and State v. Hawkins, 44 Ohio St. 98.

      Horstman, Galvin, Whittaker $ Van Horne, city solicitors, and Prausin Wulsin, for defendants in error.
    I. Our adversaries claim this is a special act.

      First. From the message of the governor calling the legislature together, which they cite at some length. If the court can consider at all tbe governor’s message in this connection, yet said message, or even matters far more serious and more directly in point than said message, are not fatal to the act. State v. Pugh, 43 Ohio St. 112. This case we consider a complete answer to our adversaries’ first claim. In view of the circumstances under which the legislature was called together, and the state of affairs in Cincinnati at that time, the words of Judge Owen, spoken years before, seem at this time almost prophetic.

      Secondly. Our adversaries claim that the act itself shows conclusive!}*- it was intended only for Cincinnati. Admitting all that they claim, viz.: that at the time of the passage of the act Cincinnati was the only city having a board of ' public improvements or a superior court, that it was the only city of the first grade of the first class in the state, and that no other city could be raised to that grade or class within the ten days after the passage of the act, when the mayor was required to make the appointments, does it follow that this is special legislation? We claim it does not. The rule as laid down in State v. Pugh is that if any other city may in the future, by virtue of its increase in population, and the action of its municipal authorities, ripen into a city of the same class and grade, and come within the operation of the act, it is still a law of a general nature and is not invalid even if it confers corporate powers. Again it is well settled that it is not the form the statute is made to assume, but its operation and effect, which is to determine its constitutionality. State v. Judges, 21 Ohio St. 211; State v. Hipp, 38 Ohio St. 199.
    These provisions as to the appointment of a board we claim are merely temporary and do not form the real basis of the act; they are merely the means imposed by the legislature, temporarily to set the machinery in motion. The act itself, after the machinery has once been started, provides for its own continuance. Any other city in the future advancing from a city of the second grade of the first class to a city of tbe first grade of the first class would find all provisions for its government by a board of city affairs fully set forth in this law, the election would be provided for by this law of such a board, and all such city would have to do would be to proceed under it. . The case of this law is materially different from the law under consideration in the case of State v. Pugh. In that case, the basis, the foundation, if we can so express it, of the whole act, was the appointment of a board of trustees to re-district the city. Until such action was taken, and such re-districting made, there could be no procedure of any kind under the law, for it provided for an entirely different method of electing council, and the election of other officers, from what was in force at the time; any action by any city under the law necessarily presupposed the re-districting of the city by a board of trustees of sinking fund, heretofore appointed under an act passed April 16, 1888; it is upon this consideration that the case turns.
    In regard to the provision that the bond shall be appx'oved by the judge of the sxxperior court and city solicitor of said city, axxd the claixn made, that at the time Cincinnati was the only city having a superior court, the Revised Statutes, sec. 1738, provide how all official bonds shall be approved, so that if any city of the first grade of the first class should have no superior court, there is provisioxx made by law as to how the official bonds of the members of the board of city affairs shall be approved. The provision in the act of October 24, 1890, that said boxxds shall be approved by the judge of the superior court, etc., necessarily meaxxs that the bonds of the members of the board of city affairs shall be approved in the manner provided by law, except that ixx such cities having a superior court, such boxxds shall be approved by the superior court; in other words the act does not legislate simply for cities of the first gx-ade of the first class having a superior court, but legislates for cities of the first grade of the first class, with the special exception that iix such cities having a superior court, the superior court shall approve the bond instead of the mayor orxly.
    In regard-to the provision that the mayor of said city shall within ten days after the takixxg effect of the act appoint four members, we submit that this provision is directory only. If the mayor failed within ten days to appoint, he certainly could appoint after ten days, and if he failed to appoint at all, and no proceeding in mandamus was instituted to compel him to appoint, the people would nevertheless elect members of the Board of City Affairs at the next April election.
   By the Court.

The act of October 24, 1890, creating a board of city affairs for cities of the first grade of the first class, is, in the opinion of a majority of the court, a special one applicable only to the city of Cincinnati, and could not, without a change in legislation, apply to any other city in the state; for the reason that the statute requires the bond of each member of the board to be approved by the judges of the superior court. The Superior Court of Cincinnati was created by a special act of the legislature passed in 1854. It was created specially for that city; and the provisions of the act, in their special form, were carried into and made a part of the Revised Statutes, S. & C. 388; § 482 Revised Statutes. No other city in the state has, nor can .have under existing legislation, a superior court. So that Cincinnati is the only city of the first grade of the first class, or of any other grade or class, that can adapt itself to the provisions of the act creating this board; and is, therefore, as certainly identified as the city, and the only city, for which the statute was adopted, as if it had been designated by name; and the act is, therefore, a special act. State v. Pugh, 43 Ohio St. 98. But it is claimed that the special provision for the approval of the bonds may be disregarded, and the general statute upon the subject, § 1738, Revised Statutes, adopted. But this is contrary to the established rule of construction, that the special provisions of a statute must prevail over general ones on the same subject. Nor would this obviate the objection, that this special provision identifies the city for which the legislation was intended. It is also argued that if this act be special for the reason stated, then the act creating the Board of Public Improvements is, for a similar reason, a special one, because it was there provided that the Board of Public Improvements should be the successor of the Board of Public Affairs, abolished by the act creating the Board of Public Improvements, and that Cincinnati was the only city which, at that time, had Such a board as the one abolished. This is true; but it was not the oifly city, that, without any change in legislation, could have had a Board of Public Affairs. Any city with a population of 200,000 and over, is eligible to be a city of the first grade of the first class, and may become such by taking the steps provided by statute. State v. Wall et al., 47 Ohio St. 499. Thus it will he observed that Cleveland could have entered the grade and class to which Cincinnati belongs, at any time, by complying with the provisions of the statute on the subject. And it is the possibility that other cities may enter a certain grade of a class, and not the certainty that they will, that gives to a law creating the grade a general character. State v. City of Toledo, decided at the present term.

And that the act attempts to confer corporate power, is, as'we think, fully settled by the previous decisions of this court. State v. Anderson, 44 Ohio St. 247. It confers on the city power to have a certain board, as part of its municipal government, that is itself clothed with the most extensive and important powers. Section 2231, Revised Statutes, as amended by the act of October 24,1890.

The act then being a special one, conferring corporate power is, as we think, clearly within the provision of the constitution inhibiting such legislation, and must be declared invalid. And this we do with a full knowledge of the rule on the subject, that no act should be declared invalid by the courts, unless clearly convinced that it is in conflict with the constitution.

It must be conceded that the method of classifying cities for the purpose of legislation, has been carried to the very verge of constitutional authority. Many conscientious minds believe that it has been exceeded. We have heretofore expressed our doubts upon the subject, but feel bound by the previous decisions of the court, (State v. Wall supra,) and 'are disposed to sustain any laws falling within the principle of those decisions; but are unwilling to go beyond them, and sanction legislation conferring corporate power, that is plainly and palpably special in character.

We see no other valid objection to the law. And as the act itself is invalid, the repealing clause must also be held inoperative, as we cannot suppose that the legislature would have repealed the act creating the Board of City Improvements, without providing any substitute therefor.

Judgment reversed, and judgment of ouster and induction.

Williams, C. J., and Dickman, J., dissent.


text:
    Railroad Company v. Smith et al.

      Corporations — Stockholder’s Liability — lief erases — Statute of Limitations:

    (Decided March 17, 1891.)
    Error to the Circuit Court of Licking county.

      J. H. Collins and C. K. Killer, for plaintiff in error.

      Q-eorge B. Smythe, for defendant in error.
   By the Court.

1. A petition, in an action by the creditors of an insolvent corporation to enfore the statutory liability of its stockholders, which avers that each of the defendants, except the corporation, is the holder of a specified number of shares of the capital stock of the corporation, contains a sufficient allegation that the defendants are stockholders. It need not be averred, in terms, that the defendants are owners of the stock held by them.

2. Holders of preferred stock are subject to the statutory liability, equally with the common stockholders.

3. When, in such action, the plaintiffs have not reduced their claims to judgment against the corporation, the stockholders can interpose only such defenses to them, as are available to the corporation.

4. It is no defense to such action, that the defendants became stockholders after the liability of the corporation to the plaintiffs was incurred.

5. The equities between the holders of stock by assignment, and their assignors who are parties to the suit, may be adjusted in the final judgment.

6. A cause of action to impeach a settlement on the ground of fraud, is barred bjr the statute of limitations, unless an action is commenced thereon within four years after the discovery of the fraud; and the statute applies, as well, where the cause of action is set up by answer in an action brought for the balance found due on the settlement.

7. Where, in an action to enforce the stockholders’ statutory liability, the claims of creditors consist of promissory notes given by the corporation for amounts agreed upon on settlement of accounts and transactions between it and its creditors, and the stockholders by their answer, seek to open up, surcharge and falsify the settlement, for fraud of which they had knowledge more than four years before the commencement of the action, the statute of limitations is a good plea in bar to the granting of the affirmative relief sought by the answer.

Judgment affirmed.