Builders Lime & Cement Co. v. Weimer

Ladd, J.

1. Alteration of instrument bills and notes: materiality: “or bearer” for “or order” : effect. The note, when signed by defendant, Weimer, he being the last to sign, was payable to the order of the Mueller Lumber Company, and thereafter ivas changed by erasing “order of” therein and inserting after the name of the payee the words “or bearer.” This was done without defendant's consent before its delivery, by Bryan, president of the Concrete Construction Company,

the first signer; and the latter, Bryan and Wilbert, endorsed the same and thereafter the note was delivered to the plaintiff for a valuable consideration and accepted without knowledge of the alteration. Any fraudulent alteration which has the effect of changing the negotiability of the instrument altered is material and avoids the instrument. Sec. 3060-a125 Code Sup. Thus the fraudulent addition of the words “or order” or “or bearer” after the name of the payee or the substitution of one of these phrases for the other is material and vitiates the bill or note in which this is done. Needles v. Shaffer, 60 Iowa 65; Croswell v. Labree, 81 Me. 44, 10 Am. St. 238; McCauley v. Gordon, 64 Ga. 221, 37 Am. R. 68; Walton Plow Co. v. Campbell, 35 Nebr. 173, 16 L. R. A. 468; Booth v. Powers, 56 N. Y. 22; Haines v. Dennett, 11 N. H. 180. Contra see Weaver v. Bromley, 65 Mich. 212, 31 N. W. 839.

Such is the law with relation to alterations of a promissory note after delivery, and the rule is the same with respect to such alterations before delivery when made by the principal or payee without the consent- of the surety or sureties signing accommodation paper, in so far as these affect the rights of sureties. Bell v. Mahin, 69 Iowa 408; Draper v. *449 Wood, 112 Mass. 315, 17 Am. R. 92; McGrath v. Clark, 56 N. Y. 34, 15 Am. R. 372; 2 Daniel on Negotiable Insts., Sec. 1373a.

2. Bills AND NOTES: "holder in due course” original holder. They may insist on being held only on the strict terms of the contract. But there is not enough in the record before us to warrant the conclusion that Weimer signed as surety. The circumstance that the consideration' passed to the Concrete Construction Company did not necessarily render him such or prove that he was so liable. He must then be treated as one of the makers. If, as such, he entrusted the note with a co-maker and the latter altered the instrument before delivery and' it has passed into the hands of a holder in due course, the latter takes it freed from the infirmity, on the theory that whenever one of two innocent parties must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it. Manifestly, this doctrine does not apply to the original parties to the instrument, for then in that situation the minds of the parties can never be be said to have met; for the payee or person receiving the instrument has taken it in its altered condition, the terms of which the complaining maker never agreed upon or subscribed to. The controlling issue for oar determination then is whether plaintiff is a holder in due course. It did not acquire the note from the payee Mueller Lumber Co. either by endorsement or delivery or from anyone to whom that company had passed the instrument. The findings were that “it was delivered to and accepted by the plaintiff, Builders Lime & Cement Co., in part payment of an indebtedness owing to the plaintiff by the Concrete Construction Co. for material furnished” it, and “at the time said note was delivered to and accepted by plaintiff said plaintiff released to said Concrete Construction Company an order for $2,000 which said company had previously given plaintiff upon the principal contractor of the Hotel Davenport building.” Another finding of the court was that after the note had been *450 signed by Weimer, “it was left in the possession of the Concrete Construction Co. by being left in the possession of Cecil E. Bryan, President of said Company.” These findings are not questioned, and as the evidence was not abstracted, but one conclusion was to be inferred therefrom, and that is that the note, after the' alterations and with the endorsements, was delivered by the first maker, the Concrete Construction Company, to the plaintiff. The endorsement by it as maker added nothing to its obligations and, of course, did not change its relation to the instrument from one of the makers to a holder. Nor, in view of the delivery of the note by the first maker to plaintiff, is it to be inferred that Bryan or Wilbert, whose names appear on the back of the notes, had been holders thereof; but even if one or both had been, it had come back to the maker, and giving it to the plaintiff was a re-issue and the same as though it were delivered for the first time. Wilkinson v. Daniels, 1 G. Greene, 179.

There is no escape from the conclusion that the note first passed from the Concrete Construction Company, one of the makers, to plaintiff, and that the latter never was a holder in due course. A “holder means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.” Sec. 3060-a191, Code Sup. Something more is essential to constitute him a “holder in due course.” The instrument must have been negotiated by a holder as above defined, in order to constitute the taker a holder in due course. This is recognized in Paragraph 4 of Sec. 3060-a52, Code Sup., defining a holder in due course and exacting “that at the time it was negotiated to him (holder) he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.”

Sec. 3060-a30 of the Code Supplement-declares that: “An instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof; if payable to bearer, it is negotiated *451 by delivery; if payable to order, it is negotiated by tbe indorsement of the holder, completed by delivery.”

3. B-ills and notes : negotiation of note: liquidation: re-issue by maker: position of last transferee. The point was settled in Van der Ploeg v. Van Zuuk, 135 Iowa 350, where the court, speaking through McClain, J., said: “The latter term (holder in due course) seems unquestionably to be used to indicate a person to whom after completion and delivery the instrument has been negotiated. In the ordinary case, the payee of the instrument is the person with whom the contract is made, and his rights are not in general dependent on any peculiarities in the law of negotiable instruments. ... In other words, we think that ‘holder in due course’ should be construed as applicable only to one who takes the instrument by negotiation from another who is a holder. ’ ’ The note had not been delivered when in the hands of the first makers, and the transfer of it to the plaintiff did not constitute the latter a holder in due course. Even if Bryan or Wilbert might at one time have held the note, the Concrete Lumber Company had again acquired it and plaintiff could be in no better position on a re-issue than were it first delivered to it. The court erred in finding plaintiff a holder in due course and the defendant might interpose any defense open to him as against a party to the instrument. It was not endorsed over by the payee or delivered to plaintiff by it, and plaintiff acquired such title as it had only through the insertion of the word “bearer,” to which this defendant had never assented. The instrument sued on he had never signed or agreed to and he was not bound thereby. The district court should have dismissed the petition. — Reversed.

Deemer, C. J., Gaynor and Salinger, JJ., concur.