Walton Plow Co. v. Campbell

Norval, J.

This is an action to foreclose a real estate mortgage given by L. S. Campbell and wife to one D. H. Duperon to secure the payment of a promissory note for the sum of $100, with interest at ten per cent from date thereof. Plaintiff is the owner and holder of said note and mortgage.

The defendants answered denying each and every allegation of the petition. The lower court found the issues in favor of the defendants and dismissed the action.

The court permitted the defendants, over plaintiff’s objection, to introduce testimony tending to prove that the note had been materially altered since” its execution by writing in the word “ bearer,” although the note was nonnegotiablé when signed. At the close of the trial the defendants, with the permission of the court, filed an amended answer denying each and every allegation of the petition and alleging that on or about the date of the note sued on they executed and delivered to D. H. Duperon a note calling for. $100, due in six months from date; that the note read “D. H. Duperon,” the words “or order” being erased by defendants before the same was signed; that after the defendants signed said note, and without their consent, the word “bearer” was fraudulently written therein over the words erased.

The first question presented for our decision is, was evidence showing that the note had been altered after its execution admissible under the general denial in the original answer? We think the answer must be in the affirmative. The petition alleges the execution and delivery of the note by the defendants, and the instrument is set out in the body of the pleading in its altered form. The general denial put in issue every material averment of the petition, and the affirmative was upon the plaintiff to prove the making and delivery of the identical note mentioned in the petition, and so continued to the close of the case. (Donovan v. Fowler, 17 Neb., 247; First Natl. Bank v. Carson, 30 Id., 107.)

Under a general denial the defendants were entitled to disprove the material facts stated in the petition. Evidence that they did not sign the instrument sued, or that it had been materially altered after delivery, was clearly admissible under the original answer. It is only affirmative defenses that the Code requires to be pleaded. The defense of alteration was not new matter required to be set up in the a.nswer. If the note was altered without defendants1 con-' sent, after its execution and delivery, by inserting therein the word “bearer,” then it was not their note, and evidence tending to establish such fact tended to rebut or disprove the evidence offered by the plaintiff, that the defendants made the note described in the petition and introduced on the trial. We do not think it was necessary to allege the alteration in the answer, and the court did not err in receiving the evidence offered on this question under the general denial. (Abbott, Trial Ev., 407; Boomer v. Koon, 6 Hun [N. Y.], 645; Lincoln v. Lincoln, 12 Gray [Mass.], 45.)

It follows from what has been said that plaintiff was not prejudiced by the filing of the amended answer, as it presented no issue not raised by the general denial of the first answer. No objection was made to the granting permission to file an amended answer, therefore the defendants cannot now urge the ruling as a ground for reversing the case.

It is undisputed that the note, when signed by defendants, was non-negotiable, and that after its delivery, but before the instrument came into the possession of plaintiff it was changed by inserting the word “bearer.” The writing of this word in the body of the note changed its character and in val ¡dated the instrument. The alteration is a material one, and, being unauthorized by the makers, no action could be maintained thereon. (Booth v. Powers, 56 N. Y., 22; Union Natl. Bank v. Roberts, 45 Wis., 373; Croswell v. Labree, 81 Me., 44; McCauley v. Gordon, 64 Ga., 221; Morehead v. Bank, 5 W. Va., 74; Needles v. Shaffer, 60 Ia., 65.)

But it is contended by counsel for appellant that the payee having indorsed the note, and plaintiff having received the same in good faith in the usual course of business, the indorsee has a right of action upon the note, notwithstanding the alteration thereof. We cannot agree with counsel in this contention. This court has more than once held that the unauthorized material alteration of a negotiable note by tbe payee nullifies the instrument, even in the hands of a bona fide holder. (Palmer v. Largent, 5 Neb., 223; Brown v. Straw, 6 Id., 536; Davis v. Henry, 13 Id., 497.)

It is finally insisted the district court erred in ruling that the mortgage given to secure the note was no lien upon the property described in the mortgage; in other words, that plaintiff was entitled to a decree of foreclosure, 'notwithstanding the alteration of'the note it was given to secure. Authorities are to be found which sustain the position contended for by counsel. The leading case so holding is Gillette v. Powell, Spear’s Eq. [S. Car.], 144. This case was followed by the supreme court of South Carolina in Plyler v. Elliott, 19 S. Car., 257, and Smith v. Smith, 27 Id., 166; S. C., 3 S. E. Rep., 78. The court of last resort in the state of Illinois has held that where a mortgagee has fraudulently made a material alteration of a note, to secure which the mortgage was executed, the debt is thereby discharged and defeats a foreclosure of the mortgage; but if the alteration, although material, was not made with a fraudulent purpose, it will not have that effect. (Vogle v. Ripper, 34 Ill., 100; Elliott v. Blair, 47 Id., 342.) So far as we are advised, the question is now presented to this court for the first time.

The effect of a material alteration of a note depends upon the person by whom and the intention with which it was made. If changed by a stranger without the consent of the parties to the instrument, the rights of the holder will not be affected thereby. The material alteration of a note by the payee, although made without any fraudulent intent, renders the paper void, yet the holder may recover in an action brought upon the original consideration. The effect of an alteration of such paper, innocently made, under an honest mistake of right, was considered by this court in Savings Bank v. Shaffer, 9 Neb., 1, and it was there ruled that while the alteration vitiates the instrument, it Would not defeat a recovery upon the original consideration for which such note was given. The weight of authority is in favor of the doctrine that a fraudulent alteration of a promissory note in a material matter, not only avoids the instrument, but woi’ks a forfeiture of the debt, for which it was executed. In such case no recovery can. be had in any form of action. The law will not permit the holder to take the chances of gain by fraudulently altering the note, without risk of loss in case of detection. (Daniels on Neg. Inst., sec. 1410a; Newell v. Mayberry, 3 Leigh [Va.], 250; Martendale v. Follet, 1 N. H., 95; Smith v. Mace, 44 Id., 553; Bigelow v. Stilphen, 35 Vt., 521; Whitmer v. Frye, 10 Mo., 349; Waring v. Smyth, 2 Barb., Ch. [N. Y.], 135; Warder, Bushnell & Glessner Co. v. Willyard, 49 N. W. Rep. [Minn.], 300.)

It is inferable from the record that the insertion of the word “bearer” was not made for an honest purpose. Applying the above principles to the case at bar, we are unable to perceive upon what ground it can be held that the mortgage should be enforced. If the fraudulent alteration avoided the note and extinguished the debt, it also discharged the mortgage by .which it was scoured. The cancellation, of the debt released the lien of the mortgage. The plaintiff not only lost his right of action on the note, but on the mortgage as well. (Sherman v. Sherman, 3 Ind., 337; Tate v. Fletcher, 77 Id., 102; McCorkle v. Doby, 1 Stro. [S. Car.], 396.)

In Gillette v. Powell, supra, it does not appear that the alteration was fraudulently made, hence that case is not an authority on the question under consideration.

The case of Plyler v. Elliott, supra, was decided by a. divided court. The opinion of the majority is placed upon the untenable ground that the fraudulent material alteration of a note does not discharge the debt, but merely takes away all remedy upon the note itself. The writer of that opinion, in substance, contends that, as to the effect upon the debt, 'here is no substantial difference between that of a not© barred by the statute of limitations and one made void by fraudulent alteration, and that both are controlled by the same principle of law. In this it seems to us that the author of the opinion has fallen into a grave error. The statute of limitations only takes away the remedy, while the fraudulent alteration of a note goes further. It reaches to the debt itself and extinguishes it. The fact that an action can be brought on a mortgage, though the note which it secures is barred, is no ground for holding that the mortgage cannot be enforced in this case to compel the payment of the debt for which the altered note was given. A barred note, so secured by a mortgage, continues as evidence of debt until the statute runs against the mortgage. (Cheney v. Woodruff, 20 Neb., 124; Cheney v. Janssen, Id., 128.) It is the judgment of this court that the judgment appealed from should be

Affirmed.

Post J., concurs.