Duncan v. Carson

Burks, J.,

delivered the opinion of the court.

This was a proceeding by motion for a judgment on three negotiable notes aggregating $5,000, made by E. P. Duncan and held by J. Preston Carson. The notes were not paid at maturity, and Carson brought this motion and obtained the judgment to which this writ of error was awarded.

At the hearing the plaintiff called upon the defendant for a statement of his grounds of defense, which were furnished in writing. Two days later the defendant filed a special plea, setting up the breach of the collateral agreement hereinafter set forth for the repurchase of the stock at an advance, within eleven months. This plea does not allege that any of the statements made to the defendant as to the value of the stock were false. The allegation of the plea is, “and at the same time made various statements as to value of said stock to your defendant.” Neither does the plea allege any promise made by the corporation. After setting forth various facts, the plea concludes that by reason of the failure of Marion Allen, fiscal agent of the corporation and of Seals, to keep their various promises, and agreements, “he has suffered damage to the extent of $6,-125.00,” which remains due and unpaid. There is no allegation anywhere in the plea that the defendant did not sign the notes, or that they were read to him differently from what they state on their face, or that they were payable at twelve instead of six months. There is no allegation of fraud in the factum of the notes, but simply that they were procured by false representations of agents of the company.

At the July term of the court, after the verdict of the jury had been rendered, and while the case was being argued on the demurrer of the plaintiff to the defendant’s evidence, the court entered a nunc pro tunc order showing that the general issue had been pleaded orally at the previous April term of the court. The parties went to trial on the issues made by these pleadings.

[1, 2] There is in strictness no such pleading as a general issue to a notice, but the courts accept it as a general denial of the plaintiff’s claim set up in the notice, and, like other, general issues, it may be pleaded orally, but all other defenses must be set up in writing. Such other defenses to a motion inay be set up by a mere statement of the grounds of defense in writing. Preston v. Salem Imp. Co., 91 Va. 583, 22 S. E. 486, 1 Va. Law Reg. 447, and note. The procedure is viewed with great liberality. When the ■grounds of defense have been sét up in writing, without formal plea, the parties are generally deemed to be at issue upon the grounds so stated, without the necessity for a replication, or other pleading.

[3-5] The filing of the special plea was not a-waiver of other grounds of defense, as claimed by the plaintiff, for a defendant may plead as many several matters of law or fact as he may think necessary, and he is not required to file all of his pleas in bar at the same time. Sec. 3264, Code Í904.

Section 3211 of the Code of 1904, under which this proceeding was had, requires that the notice shall be returned to the clerk’s office within five days after service, but it does not require the clerk to endorse on the notice the date of filing. A motion was made to dismiss this action on the ground that the notice was not returned to the clerk’s office within such five days. The deputy sheriff! who served the notice was examined as a witness in the case, and the trial judge was of opinion that it sufficiently appeared that the notice had been duly returned, and hence overruled the motion. It would serve no useful purpose to recite the testimony, but we are of opinion that there was no error in his ruling. New River Min. Co. v. Roanoke C. & C. Co., 110 Fed. 343, 49 C. C. A. 78; Burks Pl. & Pr., sec. 96.

The parties then proceeded to trial of the case on its merits. The plaintiff offered in evidence the notes in controversy and rested his case. Thereupon, the defendant offered evidence in support of his defense, and the plaintiff offered evidence in rebuttal. After all the evidence was in, the plaintiff demurred to the defendant’s evidence, and the trial court sustained the demurrer and entered the judgment complained of. The case made by the demurrer to the evidence is as follows: E. P. Duncan is a farmer residing in Culpeper county, Virginia, and is worth upwards of a hundred thousand dollars. For ten years he had been a director in a local national bank. In September, 1917, Marion Allen was the fiscal agent and general manager of sales of the stock of the Carson Manufacturing Corporation, which was engaged in the manufacture and sale of “kickless”, cranks for motor vehicles. In these capacities he dealt with Duncan in the transactions hereinafter, set forth. On September 5, 1917, Marion Allen, in company with Pope Seals, who was a subordinate, employed by him, went to the house of Duncan in Culpeper county to sell him stock in the Carson Manufacturing Corporation. Duncan, who is the only witness examined in his behalf on this subject, describes what took place there at the time as follows:

“Q. What statements, if any, were made to you by Allen and Seals which induced you to execute and deliver said notes which are in action?

“The Witness: They came over to my house and they were there, I suppose, two or three hours. I told them time and again that I had no money to take no notes or to buy any stock. They finally told me that if I would take this stock the company would give me eleven months, or they would discount the—take the—would give me $5,625 or $5,650, I have forgotten which, for the stock, in order to take up the notes -with. The notes were given for twelve months. And I then took the stock. I think the notes were given for twelve months were they not?

“The Court: Just answer the question according to your recollection.

“The Witness: That is my recollection, that they were given for twelve months.”

On further examination he testified that he could not read writing without his glasses, and that the notes in suit were made out by Allen and were read to him by Allen as payable twelve months after date: that he also signed, without reading, an application for the purchase of 250 shares of stock in said company; that Allen gave him a receipt for $5,000, and that there was endorsed on the receipt an agreement to repurchase the stock at $5,625, and that he received from the company a certificate for the 250 shares of stock. All of these papers were filed as parts of the record. The application for the stock stated, “I agree that no promise or statement made by the agent taking this application or any other person shall be binding beyond the printed terms of this application.” The endorsement on the receipt was as follows:

“We hereby agree and bind ourselves to pay E. P. Duncan $5,625.00 in cash for 250 shares- of capital stock of Carson Mfg. Corp. within eleven (11) months from date, if he so desires.” This agreement was dated “9/5/17,” and was signed, “Marion Allen, Geni. Mgr. of Sales. Pope Seals.”

[6-10] Neither Duncan nor any other witness testified to any representation whatever made to Duncan by either Allen or Seals as to the value of the stock sold. No enquiry seems to have been made by Duncan on the subject, nor any information given by Allen, Seals or anyone else. The record is simply silent on that subject. Allen, however, does testify that at the time of the sale to Duncan the stock • was worth $20 per share.

A number of subordinate questions- of interest were raised and discussed, both orally and in the briefs, but it will be necessary to decide only a few of them. A subpoena duces tecum was issued for the plaintiff, J. P. Carson, as president of the Carson Manufacturing Corporation, to produce certain books and papers of the company, and in the same subpoena he was summoned to testify on behalf of the defendant. This was in conformity with the usual practice in this State. In response to the subpoena Carson appeared with the books and papers. The defendant asked liberty to examine the books and papers, but objection was made unless Carson was first sworn as a witness, and the objection was sustained, and this ruling of the trial court is assigned as error. When the objection was sustained, the trial judge stated to counsel for the defendant, “that after the witness is sworn, and the books are produced by the witness, they will have an opportunity to examine them and decide whether or not they choose to put them in.” If when the books and papers were produced they were admitted by the plaintiff! to be the books and papers called for by the subpoena, then there was no occasion to swear the witness to identify them, but, if the admission was not made, it was necessary in some way to identify them. This might have been done by swearing the witness who produced the books, or any other witness who knew the facts. The subpoena duces tecum usually also contains the ad testificandum clause, but this is not at all necessary. The two clauses have separate and distinct objects, and either may be enforced without the other; and even where both clauses are contained in the same subpoena, it is not necessary for the party suing out the writ to avail himself of both objects. If it were, a designing party might place the books in the custody of a hostile individual for the purpose of compelling the opposite party to' call him as his own witness. It does not follow that, because a witness is sworn simply to identify books, he is called to give evidence generally in the cause. Summers v. Mosely, 2 Cr. & M. 447; Perry v. Gibson, 1 A. & E. 48; Chamberlayne on Ev., sec. 3615; 3 Wigmore on Ev., sec. 2200; Jones on Ev., sec. 802. In Wilson v. United States, 221 U. S. 361, 31 Sup. Ct. 538, 55 L. Ed. 771, it was held that the ad testificandum clause was not essential to the validity of a subpoena duces tecum and that where the subpoena also contained the ad testificandum clause it was not necessary to have the party producing the books sworn as a witness, but that they might be proved by others. But the swearing of Carson, in the case at bar, simply for the purpose of identifying the books, so that they might be used as evidence, would not have made him the defendant's witness for the purpose of general cross-examination as to his knowledge of the facts of the case. Even under the English rule, where the right of cross-examination extends far beyond what is allowed by us, a witness called to produce a document to bé identified or proved by another witness is not subject to cross-examination by the opposing party. Jones on Ev., sec. 802. Under what is termed the American rule, which prevails in this State, the cross-examination of witnesses is limited to matters brought out on the examination in chief. Wills v. Russell, 100 U. S. 621, 625, 25 L. Ed. 607; Miller v. Miller, 92 Va. 510, 516, 23 S. E. 891; Jones on Ev., sec. 820. If, therefore, Carson had been sworn simply to identify the books he could not have been properly cross-examined as to any other matter. He would not have been thereby made the witness of the defendant except for the purpose of proving the books. In view of the limited extent of the cross-examination, and as the trial court offered to give counsel for the defendant time and opportunity' to examine the books after the swearing of Carson, the defendant could not have been hurt by the ruling requiring Carson to be sworn, and the ruling was harmless error.

The effect of failure to introduce the books after examining them presents a question upon which the authorities are in conflict, but which need not be here considered because the books were not examined by the defendant.

It has been argued before us that the misreading of the time of payment of the notes to Duncan by Allen constituted fraud in the execution of the notes rendering them void in the hands of every holder, whether in due course or not, and that therefore Duncan is not bound for their payment, but it is objected that no such issue was within the pleadings.

[11-13] The defendant was called upon for, and stated, his grounds of defense under the provisions of section 3249 of Code 1904, now section 6091 of Code 1919. The object and effect of this section was to limit the scope and operation of the general issue, and to confine the introduction of evidence to the particular defenses disclosed by the statement. Oeters v. Knights of Honor, 98 Va. 201, 35 S. E. 356. The statute, however, was not enacted to punish the defendant, but to protect the plaintiff against surprise at the trial, and hence its provisions may be waived by the plaintiff if he chooses to do so. City Gas Co. v. Poudre, 113 Va. 224, 74 S. E. 158. If the evidence admissible under the general issue, but not under the grounds of defense, is offered and received without objection, and there is no motion to strike it out, objection to its admissibility is thereby waived, and it may be considered by the jury. Objection to its admissibility cannot be made for the first time in this court. In the case at bar, the so-called general issue put in issue the liability of the defendant on the notes in suit, and evidence of the fraud alleged to have been perpetrated on the defendant by misreading the notes to him was admissible thereunder, as there was no objection thereto when it was offered, nor any motion made thereafter to strike it out. Nor was it mentioned in the statement on the grounds of demurrer. It was proper, therefore, for the court to consider it on the demurrer to the evidence.

[14, 15] Before reverting to the testimony of the defendant it is necessary, in view of the argument of counsel, to restate some of the familiar law applicable to demurrers to the evidence. On a demurrer to the evidence, the demur-rant is considered as admitting the truth of all his adversary’s evidence and all just inferences that can be properly drawn therefrom by the jury, and as waiving all his own evidence which conflicts with that of his adversary or which has been impeached, and all inferences from his own evidence (although not in conflict with his adversary’s) which do not necessarily result therefrom. This admission embraces the credibility of the demurree’s witnesses and the existence of all facts which demurree’s evidence (which includes testimony) conduces to prove, or which may be reasonably inferred from his whole evidence, direct and circumstantial; and, if several inferences taiay be drawn from that evidence, differing in degrees of probability, the court must adopt those most favorable to the demurree, provided they be not forced, strained, or manifestly repugnant to reason. The court, however, is not obliged to accept as true what it knows judicially to be untrue, nor what in the nature of things could not have occurred in the manner and under the circumstances mentioned, nor what is not susceptible of proof. Horner v. Speed, 2 Pat. & H. 616; Mangum v. Norfolk & W. R. Co., 125 Va. 244, 99 S. E. 686, 5 A. L. R. 346; Burks’ Pl. & Pr., sec. 261, and cases cited; Tutt v. Slaughter, 5 Gratt. (46 Va.) 364.

[16] The evidence for the defendant proved or conduced to prove the following facts, which must be accepted as facts for the purposes of this case, under the rule obtaining on a demurrer to the evidence: The agents of the company who sold the stock to Duncan told him if he would subscribe for $5,000 of the stock, the company would give him the repurchase agreement hereinbefore set forth, by which the stock was to be repurchased within eleven months from that,time at $5,625, and would take his notes for the stock payable at twelve months after date; that he thereupon agreed to take the stock upon these terms, but that he could not read without his glasses, and the agents undertook to fill the blanks in the notes in suit in accordance with the agreement, and then read them to him as payable twelve months after date, and he thereupon signed them, supposing them to be payable twelve months after date.

The difference in the due date of the notes was a very material departure from the agreement actually made, as, under the latter, Duncan’s notes would not mature until one month after the expiration of his right to demand the repurchase, whereas, if the notes were payable six months after date, they would mature five months before he could demand the repurchase.

Whether, upon these facts, the notes in suit are void or voidable presents a question upon which the authorities are in conflict (Bishop on Contracts (ed. 1887), secs, 645-649; 8 Corpus Juris, 790; Clark on Contracts (2d ed.) 197; 14 Am. & Eng. Encl. Law (2d ed.) 157; Biddeford Nat. Bk. v. Hill, 102 Me. 346, 66 Atl. 721, 120 Am. St. Rep. 499; Griffiths v. Kellogg, 39 Wis. 290, 20 Am. Rep. 48, and cases cited; Briggs v. Ewart, 51 Mo. 245, 11 Am. Rep. 445; Walker v. Egbert, 29 Wis. 194, 9 Am. Rep. 548; Williams v. Hamilton, 104 Iowa 423, 73 N. W. 1029, 65 Am. St. Rep. 475; El Dorado Jewelry Co. v. Darnell, 135 la. 555, 113 N. W. 344, 124 Am. St. Rep. 309, and note; contra,■ cases cited in notes Bishop .on Contracts, sec. 649; Clark on Contracts (2d ed.) 234; 6 R. C. L. 52; 14 Am. & Eng. Ency. L. (2d ed.) 157) ; but which it is unnecessary for us to decide 'because even if the notes are only voidable, we are of opinion that Carson cannot recover on them.

In Piedmont Bank v. Hatcher, 94 Va. 229, 26 S. E. 505, it was held that if the maker of a negotiable note, or other party primarily bound for its payment, or bound by the original consideration, proves that it was obtained by fraud or illegality in its inception, or if the circumstances' raise a strong suspicion of fraud or illegality, the holder of the note must show that he obtained it bona fide for value in the usual course of business, before maturity, and under circumstances which create. no presumption that he knew of the facts which impeached its validity.

The case cited arose before the adoption of the negotiable instruments act (laws 1898, c. 868), which went into effect July 1, 1898. But the decision is in acco’-d with section 59 of that act, now section 5821 of the Code (1919),. which declares: “Every holder is deemed prima facie to be a holder in due course, but when it is shown tint the-title of any person who has negotiated the instrument was. defective, the burden is on the holder to prove that he or some person under whom he claims, acquired the title as a holder in due course. But the last mentioned rule does not apply in favor of the party who became bound on the instrument prior to the acquisition of said defective title.”

Duncan testified positively that his notes were to run twelve months, that they were filled in by the agents and read to him as twelve months, when in fact they were made payable at six months.

[17, 18] It is objected that Duncan’s special plea, sworn to by him, admits that the notes were payable at six months, and that in view of the conflict between the statements of the plea and his testimony he should be held to the statement in his plea. But it must be borne in mind that the plea was prepared by counsel, and it was for the jury to determine which was correct, and if the jury, making inferences most favorable to the defendant, might have found in favor of the testimony of Duncan, it was the duty of the trial court, on the demurrer to the evidence, to have so decided. It must be accepted, therefore, that at least fraud in the procurement of the contract was established by the testimony of Duncan. This threw upon Carson the burden of showing that “he or some person under whom he claims acquired the title as a holder in due course.” This he attempted to do by his own testimony and that of Allen, the agent who made the sale. The credibility of this testimony, though undisputed, was for the jury. Joy v. Diefendorf, 130 N. Y. 6, 28 N. E. 602, 27 Am. St. Rep. 484. Allen’s account of this part of the transaction is that he was connected with the company from its organization as its fiscal agent and general manager of sales of its stock; that he had no superior in this department, not even the president of the company, but that he was himself “the superior in the department of sales;” that before making the sale to Duncan he was assured by the cashier of one of the national banks in Culpeper that he felt no hesitancy in saying that his finance committee would discount Duncan’s notes for at least $5,000. He also had the same verbal assurance from the cashier of another bank; that after making the sale to Duncan he applied to the two banks to discount the notes of Duncan, but each refused, solely on the ground that they had already discounted his paper to their limit; that he was personally able to pay the $5,000 himself, but wished to get the money on the' notes and turn the cash in to the company, and applied to one man in Richmond to take them, but he had been unable to do so because he could not furnish the cash, but only a time certificate of deposit; that Carson, the plaintiff in the case, was the president of the company, and that he and Carson had a suite of offices in a building in the city of Richmond; that» the company had offices and he had a private office in connection with the suite; that he had no authority to execute the contract of repurchase on behalf of the company, and did not execute on its behalf, but on behalf of himself; that while he had made a number of these contracts of repurchase, the contract in suit was the only one to which he signed his name as general manager of sales; that having made the sale, he had either to turn in the money to the treasury for the stock, or else replace the stock in the treasury of the company; that not desiring to advance the cash himself, he applied to Carson to sell him 250 shares of stock in exchange for Duncan’s notes. At the time he made the offer he showed to Carson a letter from the cashier of the Culpeper National Bank as to Duncan’s worth, and that Carson gave him the 250 shares of stock in exchange for the Duncan notes, and that he returned the 250- shares of stock to the treasurer of the company, thereby making the company whole. He says that he does not think he told Carson anything about his habit of making repurchase agreements, and that Carson knew nothing about such agreements as they were individual matters, and he had nothing to do with them. He appears to have had entire control of the sales with authority to direct when stock should be issued, and he testifies, “I authorized the secretary of the company to issue the stock and forward it to Mr. Duncan, which was done. Then after I could not convert the notes into cash and the stock had been issued from the treasury after I could not convert these notes into' cash, and not feeling disposed to put up the cash myself, I sold the notes to Mr. Carson in order to reimburse the treasury of the Carson Manufacturing Company in the transaction;” and that Carson turned the stock over to him which he replaced in the treasury of the corporation. The certificate of stock which was issued to Duncan was signed by Carson as president of the company. Carson testifies that he sold the stock to Allen after seeing the letter from the cashier of the Culpeper National Bank and the application of Duncan for the purchase of the stock, and that he had no knowledge of the repurchase agreement or of any matter affecting the validity of the notes.

[19, 20] As Allen was the general sales manager of the stock of the company and had no superior in the department of sales, the jury might well have believed that the sale to Duncan on time was binding on the company. If so, Duncan had the right to set up the defense growing out of the repurchasing agreement. If the company accepted the b.eneftt of the contract, it was also bound.by the representations of its agent, although unauthorized. Owens v. Boyd Land Co., 95 Va. 560, 28 S. E. 950.

[21, .22] It .was also the duty of .Carson, as president of.the company, when he signed the.certificate of stock to Duncan, to know that the conditions,had been complied with which authorized the issue of the stock, and if he failed to do so, he was negligent. If Allen had no authority to sell except for cash, then when he found he could not perfect the transaction he should have disclosed the facts to the officers of the company, notified Duncan, and asked a return of the stock upon the surrender of his notes. In selling the stock he was acting as agent for the company, and he, of course, knew if the notes were turned in to the company, and the company was the holder of them, Duncan could set up in a suit brought by the company the breach of the collateral agreement set forth in the special plea. When the stock certificate was issued to Duncan, the company had the right to demand the surrender of the notes given by Duncan for the stock, and the jury might well have believed that the transaction between Allen and ■Carson stood on no higher footing than if the notes of Duncan had been transferred to Carson by the company. If the jury might have so found, the trial court, on the demurrer to the evidence, should have so decided. If the notes had been transferred to Carson by the company, he-could not have set up the defense of a bona fide holder in due course, as he was the president of the company. McCarty v. Kepreta, 24 N. D., 395, 139 N. W., 992, 48 L. R. A. (N. S.) 76, Ann. Cas. 1915 a, 834; Caraker v. Hix, 9 Ga. App. 493, 71 S. E. 765; Hardin v. Dale, 45 Okl. 694, 146 Pac. 717, L. R. A. 1915 D, 1099; Moss Banks & Banking, sec. 137.

Upon the evidence in this cause, the jury might have w;ell believed that Carson" did not obtain the notes “under circumstances which created no presumption that he knew the facts which impeached their validity,” and that he had not borne the burden thrown upon him by the statute.

There was a verdict in favor of Duncan against Carson for $362.50, in the event the demurrer to the evidence should be overruled, but there was no evidence to - sustain it and it will be set aside. Upon entry of the final judgment in this court, Carson, the defendant in error, will be entitled to demand of and recover from Duncan, the plaintiff in error, possession of the certificate for 250 shares of stock of the Carson Manufacturing Company.

It is unnecessary to discuss other assignments of error.

[23] For the reasons stated, we are of opinion that the trial court erred in sustaining the demurrer of the defendant in error to the evidence of the plaintiff in error, and for this reason its judgment must be reversed and the verdict of the jury will be set aside; and as the facts before this court “are such as to . enable it to attain the ends of justice,” it will, in pursuance of section 6365 of the Code, enter a final judgment in favor of the plaintiff in error, and for his costs in this court and also in the circuit court.

Reversed.