Respondents, Garrard and Bennett, executed a conditional sale contract for the purchase of an automobile, which had attached thereto, and as a part of such sale contract, the note sued on in this action. *Page 153 Thereafter, this note was detached from the part containing sale agreement and was indorsed to appellant, who brings this action to recover thereon, claiming that the instrument is a negotiable promissory note and that it is a holder in due course.
Respondents contend that the two parts of this agreement should be considered together, and when so considered, it is non-negotiable and subject to any defenses that might be urged against the original payee. The evidence shows that the title to the automobile, for which this conditional sale contract was given, was at the time of the purchase, in one George Horst, who was the owner; that the Ballaine Motor Company, the payee in said note, was not the owner; and that Horst subsequently, by judicial proceedings, established his right to the possession and ownership of said automobile. The consideration for their giving of this conditional sale agreement wholly failed.
At the close of the testimony, the court directed a verdict for the defendants Garrard and Bennett upon the ground that the note sued upon was a non-negotiable instrument and that the indorsement of the Ballaine Motor Company transferred the note to appellant subject to all defenses in favor of the makers of the note as against the vendee, Ballaine Motor Company, to whom they had given this title retaining note in payment for the automobile.
From this judgment upon a directed verdict, this appeal is taken.
Numerous errors are assigned but in view of the conclusions reached, — that the note upon which this action is founded is not a negotiable instrument; that appellant is not a holder in due course, and the consideration for which the said conditional sale contract was given is shown to have failed, — it is only necessary to consider the assignments relating to these questions.
It is apparent from an inspection of the note sued on that it has been a part of and detached from some other contract. It contains the initial characters, "G. M. A. C. Form *Page 154 No. 101-B." These are the same as the initial characters on the sale agreement except one is."A" and the other is "B." The instrument sued on recites: "This note covers deferred instalments under a conditional sale contract made this day between the payee and maker hereof." An inspection of the two agreements shows that they have been parts of the same instrument and originally constituted a single agreement, perforated and printed in such a manner that the note part could be torn from the title retaining portion of the conditional sale contract and when so detached, upon its face, be in form a promissory note.
In Stevens v. Venema, 202 Mich. 232, 168 N.W. 531, L.R.A. 1918F, 1145, the court had occasion to consider a case which arose under similar conditions, and rightfully held, we think, that incorporating a detachable promissory note in an elaborate and ingeniously enticing order for merchandise is presumptively fraudulent and that detaching from a conditional sale agreement for merchandise a note incorporated therein is an alteration which avoids it in the hands of the payee and purchaser with notice, although the contract authorizes its detachment.
Joyce, in his work on Defenses to Commercial Paper, vol. 1 (2d ed.), sec. 257, states that a material alteration of a bill or note will be a good defense to an action against a party not consenting thereto and extends to those cases where the instrument has come into the hands of a bona fide holder, and application of this rule will not be affected by the fact that the alteration was of such a character that it could not be detected, and distinguishes between this class of cases and cases where a blank has been negligently left and the instrument has been changed by filling in the blank. The following authorities, cited under notes 27 and 28, among others, support this rule: Young v. Baker, 29 Ind. App. 130,64 N.E. 54; Trigg v. Taylor, 27 Mo. 245, 72 Am. Dec. 263; Ericksonv. First Nat. Bank, 44 Neb. 622, 48 Am. St. 753, 62 N.W. 1078, 28 L.R.A. 577; Aamoth *Page 155 v. Hunter, 33 N.D. 582, 157 N.W. 299; Wade v. Withington, 83 Mass. (1 Allen) 561.
The failure of consideration for which this note was given was conclusively established. It having been made a part of this conditional sale agreement, it was not a negotiable instrument. (Kimpton v. Studebaker Bros. Co., 14 Idaho 552, 125 Am. St. 185, 14 Ann. Cas. 1126, 94 P. 1039; General MotorAcceptance Corp. v. Talbott, 39 Idaho 707, 230 P. 30.)
The jury was properly instructed to return a verdict for respondents and the judgment is affirmed, with costs to respondents.
Wm. E. Lee, Budge, Givens and Taylor, JJ., concur.